An example
For a 54-year-old fractional CFO with three clients, working through a single-member LLC, the 2026 figures work out like this:
- Cash balance plan, first year
- $247,000
- Solo 401(k) alongside
- $39,000
- Both plans
- $286,000
- A Solo 401(k) on its own
- $80,000
- Federal income tax saved
- $45,000
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.
Fractional executives are generally sometimes a specified service business for the 20% qualified business income deduction, depending on what exactly the work is. That changes how much a contribution saves at higher incomes. How the deduction interacts with contributions
Contractor, employee or officer
Clients pay fractional executives in different ways, sometimes within the same year. Only fees paid to your own business count toward your plan.
- Fees invoiced by your business are self-employment income, or revenue of your S corporation. They can support the plan.
- A client that puts you on its payroll pays you wages. They cannot support your plan, and any 401(k) deferrals you make there use the same per-person deferral limit as a Solo 401(k).
- An officer title can change the answer. The IRS generally treats a corporate officer who performs more than minor services for the corporation as its employee. A fractional CFO who is also the client's named officer should confirm how that engagement is classified.
If you have both kinds of income in a year, a W-2 job and a side business explains how the limits fit together.
One client or several
The tax code has a rule aimed at a business whose principal business is performing management functions for one organization. When it applies, your business and that client are treated as a single employer, and the client's employees count as yours. Unlike the other related-employer rules, it needs no ownership at all.
With several unrelated clients, none of which makes up most of your work, the rule is much less likely to come up. If one client dominates, check it before adopting a plan, not after. See who can have a solo cash balance plan.
Equity in a client adds a second question. If you or your family own part of a client that has employees, the affiliated service group and controlled group rules can also apply.
Engagements end, and a gap between them can leave a year's income well below the last. The plan's minimum contribution is due either way, which is one reason to size a plan to a normal year of engagements.
Is it consulting?
Fractional work sits on the edge of the specified service list, which is why this page does not give one answer. The regulations define consulting as professional advice and counsel. Running a function, with authority over staff, budgets and decisions, looks more like management, which is not on the list, but the line depends on the facts of each engagement.
| Role | How the work might be viewed |
|---|---|
| Fractional CFO | Advice on valuations, financing, mergers and acquisitions, or raising capital falls within financial services as the regulations define it, which is a specified service. Running the finance function may not. |
| Fractional CMO | Strategy advice looks like consulting. Doing and managing the marketing work may not be. |
| Fractional CTO | Engineering is expressly left off the list and building software is not named. Advising on technology strategy can be consulting. |
A business with gross receipts of $25 million or less is not a specified service business if less than 10% of its receipts come from specified services. Whether your work crosses that line is a question for your tax adviser. How it affects the value of a contribution is covered in the QBI deduction and retirement contributions.