Cash balance plan limit at age 38

Why the limit is about $92,000 at 38

A cash balance plan is limited by what it may pay out at retirement, not by what goes in. The plan assumes you retire at 62, 24 years after the end of 2026. The most the account may hold by then is a lump sum worth a lifetime benefit of $290,000 a year, scaled down if you will have been in the plan fewer than ten years: about $3,720,000 at 62.

The plan may fund that amount over the years that remain, so the fewer there are, the more each year's contribution can be. At 38 that works out to about $92,000 in the first year, more than what a Solo 401(k) alone allows.

Before your early 40s, retirement is more than about 20 years away and the funding rules discount it at a higher interest rate, which keeps the yearly amount modest. The limit rises with each year of age.

By income

The ceiling above assumes plenty of income. In practice the business has to earn what it puts in: a self-employed owner cannot deduct more than their net earnings, and a corporation funds the plan from profit left after salary. For a sole proprietor aged 38 with ten years in business:

When the cash balance plan is funded to its limit, the Solo 401(k) keeps your full salary deferral but its profit-sharing part is generally held to 6% of pay. See using both plans together.

In a newer business

The yearly benefit a plan can build is also capped by your pay times your years in the business, divided by ten. For a young business with moderate pay, that can be the lower of the two limits in the first year. With $200,000 of pay:

Alongside a 401(k)

At 38 a Solo 401(k) on its own takes up to $72,000. Most owners keep the 401(k) and add the cash balance plan on top.

Compare the figures side by side for your income in the comparison calculator, or see every age in one table.