You are a successful consultant, doctor, or business owner earning over $500,000 a year.
You diligently maxed out your Solo 401(k) (approx. $70,000 limit).
But when you look at your tax bill, you still owe Uncle Sam a fortune (37% Federal + State Tax).
Is $70,000 really the limit? No.
There is a "Super Retirement Account" designed specifically for high-income business owners.
It’s called a Cash Balance Plan (Defined Benefit Plan), and it allows you to shelter $200,000 to $300,000+ annually, pre-tax.
Disclaimer: Setting up a DB plan is complex and requires an Actuary. Costs are higher than a 401(k). Consult a specialized TPA (Third Party Administrator).
How High Earners Slash Taxes by Contributing $300,000 to a 'Cash Balance Plan'
1. What is a Cash Balance Plan?
Think of it as a Traditional Pension Plan combined with a 401(k).
Unlike a 401(k) where the limit is fixed (Defined Contribution), here the limit is based on a "future benefit" formula (Defined Benefit).
The Magic: The older you are and the more you earn, the more you can contribute. The IRS allows you to "catch up" on retirement savings aggressively to fund a set payout at age 62.
2. Solo 401(k) vs. Cash Balance Plan (The 2026 Numbers)
Let’s look at the math for a 55-year-old Self-Employed Doctor earning $600,000.
| Account Type | Max Contribution (Est.) | Tax Savings (at 40% rate) |
|---|---|---|
| Solo 401(k) Only | ~$78,500 (w/ Catch-up) | ~$31,400 |
| Cash Balance Plan Combo* | $315,000 ($260k DB Plan + $55k 401k) |
~$126,000 |
*Important Note: When combining plans, your 401(k) Profit Sharing is generally limited to 6% of income (down from 25%). However, the massive Cash Balance contribution more than makes up for it.
Result: By adding this plan, you save an extra $95,000+ in cash that would have gone to the IRS.
3. Who Qualifies? (The "Sweet Spot")
This plan is not for everyone. It works best if:
- Age: You are over 40 (Contribution limits increase with age).
- Income: You earn consistently over $400,000 annually.
- Staff: You have few or no full-time employees. (If you have staff, you must contribute to their retirement too, which can get expensive).
- Cash Flow: You have "excess cash" you don't need for lifestyle expenses.
4. The Catch: It's Not "Optional"
With a Solo 401(k), you can decide to contribute $0 in a bad year.
A Cash Balance Plan is a mandatory commitment.
Once set up, you must fund the account every year (usually for at least 3-5 years) to satisfy IRS permanence rules.
If your income fluctuates wildly (e.g., a volatile realtor), this plan is risky. It is designed for stable high-earners.
5. Setup Costs vs. Tax Savings
The Cost:
You cannot open this on E*TRADE in 5 minutes. You need an Actuary to sign off on the calculations.
Expect to pay:
- Setup Fee: $2,000 - $3,000.
- Annual Admin Fee: $2,000 - $3,500.
The ROI:
Pay $3,000 in fees to save $100,000 in taxes?
That is a 3,000% Return on Investment before the money is even invested. It is a no-brainer for the right candidate.
The Ultimate Tax Shelter
Don't just complain about high taxes. Do something about it.
If you are a high-income professional, relying solely on a Solo 401(k) is a mistake. You are leaving six figures of tax deductions on the table.
Action Plan: Thanks to the SECURE Act 2.0, you now have until your Tax Filing Deadline (including extensions) to set this up for the previous year. Contact a TPA or financial advisor today and ask for a "Cash Balance Illustration."
Helpful Resources:
Charles Schwab: Personal Defined Benefit Plan
Emparion: Cash Balance Plan Calculator
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