An example
For a 50-year-old management consultant who works through an S corporation, the 2026 figures work out like this:
- Cash balance plan, first year
- $201,000
- Solo 401(k) alongside
- $46,000
- Both plans
- $247,000
- A Solo 401(k) on its own
- $80,000
- Federal income tax saved
- $47,400
Federal income tax only, compared with making no retirement contributions. State tax saved depends on where you live: see savings by state. An illustration from the same calculation as the estimate, not a quote.
Consultants are generally a specified service business for the 20% qualified business income deduction. Above the income threshold that deduction phases out, and a contribution that brings taxable income back down can restore part of it. How the deduction interacts with contributions
In an S corporation, salary is the lever
For an S corporation owner, the plan counts W-2 salary and nothing else. Distributions of profit, however large, do not support a contribution. The benefit the plan can fund is capped at 100% of your average pay over your highest three consecutive years, and pay credits are usually set as a share of salary, so a low salary limits the plan every year it stays low.
| Salary | Effect on the plan | Payroll tax on the extra salary |
|---|---|---|
| Up to $184,500 | Each extra dollar raises the pay the plan can use | 15.3%, split between the corporation and you |
| $184,500 to $360,000 | Still raises the pay the plan can use | 2.9% Medicare, plus 0.9% additional Medicare tax once your wages pass $200,000 ($250,000 for a married couple) |
| Above $360,000 | None. This is the most pay any plan may count | Same as the row above |
Salary has to run through payroll by December 31, cannot be added after year end, and has to be reasonable for the work you do. See S corporation owners. Consultants who file as sole proprietors skip this decision: their plan compensation is worked out from net earnings after the year ends.
Uneven income and the minimum contribution
Consulting income tends to arrive in engagements. A cash balance plan gives you a range each year, from a required minimum to a deductible maximum, and the minimum has to be paid even in a thin year. Consultants usually manage this in three ways:
- Setting pay credits below the maximum when the plan is designed, which lowers the minimum as well.
- Contributing toward the top of the range in strong years. Assets above what the plan needs can lower the minimum in later years.
- Amending the plan to reduce future pay credits if the business changes. Timing rules apply, so this is done early in a year, not at the end of it.
More in minimum contributions and lean years.
If most of your revenue comes from one client, check two things. First, whether the relationship is really employment; if it is, the income is wages and cannot support your own plan. Second, whether you or your family own part of that client or are among its highest-paid employees, because the affiliated service group rules can then treat the two businesses as one employer.
Consulting and the QBI deduction
Consulting is on the specified service list. The regulations define it as giving professional advice and counsel to clients to help them reach goals and solve problems. Two limits on that definition are worth knowing:
- Advice that is part of selling goods, where you are not paid separately for it, is not treated as consulting.
- A business with gross receipts of $25 million or less is not a specified service business if less than 10% of its gross receipts come from specified services.
For most independent consultants neither applies. The deduction phases out between $403,500 to $553,500 of taxable income for a married couple filing jointly, and $201,750 to $276,750 for a single filer, and above that a consulting firm gets none. A large contribution can pull taxable income back into the range and restore part of the deduction, so the tax saved on some dollars can exceed your bracket. See the QBI deduction and retirement contributions.