The yearly range
A cash balance plan is a defined benefit plan, so the law decides how much must go in each year. After the plan year ends, an enrolled actuary values the plan and works out two figures:
- The minimum required contribution: broadly, the cost of the benefit you earned this year (the normal cost), plus a slice of any shortfall between the plan's assets and its funding target, spread over 15 years (IRC 430).
- The maximum deductible contribution: the funding target plus the normal cost plus a cushion, less the assets already in the plan (IRC 404(o)). It is never lower than the minimum.
Any amount between the two is allowed, and you choose it each year. It does not have to match what you put in last year.
For a 2026 calendar plan year, the minimum must be in the plan by September 15, 2027, 8½ months after the year ends. To deduct the contribution for 2026, it must also be in by the business's tax filing deadline, including extensions, which for a partnership or S corporation is that same September date. The deadlines calculator shows the dates for your type of business.
What moves the minimum
The minimum is not a fixed share of the maximum. It depends on how the plan has been funded so far and how its investments have done.
| Pushes the minimum up | Pushes the minimum down |
|---|---|
| A full year of pay credit earned | Contributions above the minimum in earlier years |
| Investment losses in the plan account | Investment gains in the plan account |
| Contributing only the minimum year after year | Benefits that have stopped growing because you have reached the IRC 415 limit |
The pattern that surprises people is that the minimum is usually close to the cost of a full year's pay credit once the plan is running. The range is wide mainly when the plan is ahead of its funding target, which happens when you have put in more than the minimum in earlier years. Funding generously in good years is what gives you room in bad ones.
Returns matter too. Most solo plans now credit the actual return on the plan's investments, and weak returns can raise the minimum in later years. See investing cash balance plan assets.
In a lean year, fund the minimum
If income falls but the business can still afford the minimum, the simplest course is to contribute the minimum and carry on. Nothing needs to be amended, and the plan keeps running as designed.
Two tax points are worth knowing:
- If you are self-employed, the plan deduction cannot be more than your earned income from the business (IRC 404(a)(8)(C)). If the minimum is more than that, the excess is not deductible that year, but because it was required it is not hit by the 10% excise tax on nondeductible contributions (IRC 4972(c)(4)). It can generally be deducted in a later year.
- If you run a corporation, the minimum is due even when it is more than the year's profit. How the resulting deduction is used is a question for your tax adviser.
If the minimum is too much
When the business cannot keep paying the minimum, there are three ways to bring it down. All of them work only for the future.
| Option | What it does | What stays |
|---|---|---|
| Amend to lower future pay credits | Reduces the pay credit for this year and later years, which lowers the normal cost and so the minimum | Benefits already earned, and any shortfall on them |
| Freeze | Stops new pay credits altogether. The account keeps receiving interest credits | The plan, its annual valuation and filings, and a minimum if assets fall short of the funding target |
| Terminate | Ends the plan. The account is paid out, usually rolled into an IRA | A final valuation and a final Form 5500-EZ |
Timing is the catch. A plan can never take away a benefit you have already earned (IRC 411(d)(6), often called the anti-cutback rule). Plans usually credit the year's pay credit once you meet a service condition in the plan document, such as a number of hours worked in the year. Once you meet it, that year's credit is generally earned and protected, and its cost is part of the minimum. So an amendment that lowers this year's pay credit generally has to be signed before you reach that point, which usually means early in the year. Your plan document sets the exact condition.
The law also generally requires advance written notice before an amendment that significantly reduces future benefits takes effect, known as a 204(h) notice after the ERISA section, with a parallel rule in IRC 4980F. In a plan that covers only you and your spouse, the notice goes to the two of you. The conservative course is to give it anyway, prepared along with the amendment.
If you are reading this in the autumn and the current year already looks lean, the practical question is usually about next year: whether to amend or freeze before the next pay credit starts to accrue. Closing the plan is covered in closing a cash balance plan.
What happens if the minimum is missed
Missing the minimum is expensive. The business owes an excise tax of 10% of the unpaid amount, rising to 100% if it stays unpaid (IRC 4971). The unpaid amount is reported on the actuary's Schedule SB and, in years one is due, on Form 5500-EZ.
Underfunding has a second effect. If the plan's funded percentage falls below certain levels, IRC 436 limits lump sum payments until it is funded again, which matters if you plan to take the money out soon.
The plan is meant to be permanent
The IRS expects a qualified plan to be a permanent arrangement, not a temporary one (Treas. Reg. 1.401-1(b)(2)). Amending, freezing or closing the plan because income has really fallen is a business reason and is normal. Doing it after a year or two for no reason beyond the tax deduction can lead the IRS to question whether the plan was genuine, and with it the deductions already taken.
That is why a cash balance plan tends to suit people who expect steady income for at least the next three to five years. If your income swings widely, a smaller pay credit in the plan design, or a Solo 401(k) alone, may fit better. How much you can contribute explains how the range is set in the first place.