Dillon Goodman, CPA, CFP®, works with business owners in Fort Collins, Loveland, and nearby towns from the Loveland office. This page explains when a cash balance plan enters the comparison, who it tends to fit, and what to ask before adopting one. The comparison ranks plans by eligibility and the 2026 IRS limits. It does not name a product, and it does not grow an account.
Educational comparison using IRS limits for 2026; eligibility, nondiscrimination testing, coverage, and deadlines depend on the facts and the plan documents; not tax or legal advice. Figures are contribution limits, not projections of investment results. Vital Investment Management, LLC is a fee-only, independently owned, locally based, SEC-registered investment adviser. Registration does not imply a certain level of skill or training. Form ADV · Form CRS.
When does a cash balance plan enter the comparison?
A cash balance plan usually comes up after an owner has already filled a 401(k) or SEP IRA and wants to save more for retirement. It is a type of defined benefit plan. Each participant has a hypothetical account that grows in two ways:
- Pay credit: a flat dollar amount or a percentage of pay, set by the plan document.
- Interest credit: a fixed or variable rate, also set by the plan document.
The business funds the plan each year within a range an actuary calculates. If plan investments earn less than the interest credit, the business generally makes up the shortfall. If investments earn more, future required contributions may go down.
Start with the retirement plan finder to see where a cash balance plan ranks against a SEP IRA, a solo 401(k), a SIMPLE IRA, and a Safe Harbor 401(k) for your facts.
Who a cash balance plan tends to fit
A cash balance plan is often worth exploring when most of these are true:
- High, steady profits. The plan expects a contribution every year. Owners with consistent income are usually better candidates than owners whose profits swing widely.
- Already maxing a 401(k) or SEP IRA. The plan is designed to go beyond those limits, not to replace them.
- The owner is older than most staff, or there is no staff. Age has a large effect on how much can go in.
- A multi-year horizon. These plans are intended to be ongoing, not a one-year arrangement.
- Comfort with administration. An actuary, annual filings, and plan documents are part of the package.
A cash balance plan is often a weaker fit when cash flow is unpredictable, when the business has many older employees, or when the owner wants complete freedom to skip a year.
How age affects allowable contributions
A defined benefit plan works backward from a benefit at retirement age. The actuary calculates how much can be contributed each year to fund that benefit.
An older owner has fewer years until retirement age. That means each year's contribution has to do more of the work, so the allowable contribution generally rises with age. A younger owner with the same income usually has a lower allowable amount.
The same math applies to employees. That is one reason a plan can look very different for a business whose staff is younger than the owner than for one whose staff is about the same age.
This page does not list a dollar contribution limit for a cash balance plan, because the IRS does not publish one. The IRS limits the annual benefit, and the allowable deposit comes from an actuarial calculation based on age, compensation, plan terms, and interest assumptions. Those IRS figures change yearly.
Solo owner vs a company with staff
Solo owner (or owner and spouse only). Design is simpler because there is no one else to cover. The plan can focus on the owner's age and compensation. Administration and filing requirements are still part of the plan. Ask the plan provider which filings apply to an owner-only plan.
Company with employees. Eligible employees generally must be covered. The plan must also pass coverage and nondiscrimination testing, so staff usually receive meaningful contributions. Those contributions can come through the cash balance plan, the 401(k), or both. Employee cost belongs in the decision from the start. An actuarial illustration typically shows owner and staff amounts side by side.
Pairing a cash balance plan with a 401(k)
Many owners keep a 401(k) and add a cash balance plan beside it. A common structure looks like this:
- Elective deferrals into the 401(k), plus a catch-up contribution when the age rules apply.
- An employer contribution in the 401(k). When paired with a cash balance plan, this piece is often limited, as the card below shows.
- The cash balance deposit, set by the actuary.
The two plans are tested together in many designs. The plan document determines who gets what. Combined deduction rules also apply. Raise those questions with the actuary and your CPA before choosing contribution levels.
Cash balance plan vs SEP IRA
SEP IRA
- Employer contributions only, as a percentage of compensation, up to an annual cap that changes yearly.
- Contributions can generally vary from year to year, including skipping a year.
- Every eligible employee receives the same percentage the plan uses for the owner.
- Simple to set up, with light ongoing administration.
Cash balance plan
- The allowable contribution comes from an actuarial calculation and can exceed SEP limits, especially for older owners.
- Funding is expected every year within a required range.
- Staff contributions are set by the plan design and testing, not one uniform percentage.
- Requires an actuary, plan documents, and annual filings.
A SEP fits owners who value flexibility and simplicity. A cash balance plan fits owners who want a higher ceiling and can commit to steady funding. Whether a SEP can sit beside a cash balance plan, and how the deduction limits interact, is a question for the actuary and your CPA. For a broader overview, see owner retirement plans.
Ongoing costs and the actuary's role
A cash balance plan carries more ongoing cost than a SEP or a basic 401(k). Typical cost categories include:
- Plan document setup and periodic restatements.
- Annual actuarial work, including the required contribution range and certifications.
- Third party administration, testing, and annual filings.
- Investment management for plan assets.
- Possible government insurance premiums, depending on the plan and business type. Ask whether this applies to you.
Fees vary by provider and plan size, so compare written quotes.
The actuary sets the funding range each year, runs the calculations behind the deposit, and signs required certifications. Only an actuary can turn the IRS benefit limit into a deposit amount.
Plans are intended to be permanent. Ending one after only a few years can raise questions, so discuss the expected time frame before adopting.
Questions to raise with your CPA
These are planning questions, not tax preparation. Bring them to the CPA who prepares your business and personal returns:
- How does my entity type affect the compensation used in the plan formula: W-2 wages from an S corporation, self-employment earnings, or K-1 income?
- What are the deadlines to adopt the plan and to make each year's contribution?
- How do deductions for the cash balance plan and the 401(k) interact for my business?
- How might the contribution affect other parts of my return?
- What happens if profits drop in a future year?
Dillon is a CPA and a CFP®, but this page and the intro meeting are investment and planning education. They are not tax return preparation or tax advice.
2026 limits
For 2026, the IRS elective deferral limit for a 401(k) is $24,500. The catch-up contribution is $8,000 at age 50 or older, and $11,250 for a person who turns 60, 61, 62, or 63 in 2026. Annual additions are $72,000. Compensation used for the percentage limits is capped at $360,000. A SEP contribution is limited to $72,000. A SIMPLE IRA deferral is $17,000, or $18,100 when the higher small-employer limit applies. The defined benefit annual benefit limit is $290,000. That benefit limit is not a cash balance deposit and not a projected balance.
Rules as of October 22, 2026. Sources: IRS news release IR-2025-111 and Notice 2025-67.
Worked example
The example owner:
- Is age 60.
- Has $300,000 of W-2 wages.
- Wants a deposit above the 401(k) annual additions limit.
- Has three employees.
The first eligible card for these entries is Cash balance plan, with a 401(k). The owner amount is $53,750 under the limits above.
Cash balance plan, with a 401(k)
The 401(k) portion shown is elective deferrals plus an employer contribution of up to 6% of capped compensation. The cash balance deposit itself has no published dollar limit. IRC section 415(b) caps the annual benefit at $290,000 for 2026. That figure is a benefit limit, not a contribution and not a projected account balance, and only an actuary can turn it into a deposit. In the worked example, the owner amount under the published limits is $53,750.
Safe Harbor 401(k)
Elective deferrals can be up to $24,500 for 2026. Employer contributions, including the safe harbor, stay inside the $72,000 annual additions limit. The 3% nonelective contribution shown here is the predictable safe harbor minimum, not a same-percentage profit sharing cost. Extra profit sharing can require nondiscrimination testing or a gateway contribution for staff. In the worked example, the owner amount under the published limits is $83,250.
Questions
What is the difference between a SEP and a solo 401(k)?
A SEP allows employer contributions only, up to a percentage of compensation and the $72,000 cap for 2026. For self-employed owners, the percentage is figured on net earnings after certain adjustments, so ask your CPA how it applies. A solo 401(k) adds an employee deferral of up to $24,500 for 2026, plus a catch-up contribution when the age rules apply. It is generally available only when the plan covers the owner, and possibly a spouse, with no other eligible employees.
How does a SIMPLE IRA compare with a SEP when there are employees?
A SIMPLE IRA requires a match or a 2% nonelective contribution, and it has a lower deferral limit than a 401(k). A SEP gives every eligible employee the same percentage the plan uses for the owner, which can cost more when that percentage is high.
What does the cash balance card show?
It shows the 401(k) deferral and a 6% employer portion that can sit beside a cash balance plan. It also shows the $290,000 IRC section 415(b) annual benefit limit. The cash balance deposit is not calculated here. Ask for an actuarial illustration.
Can a cash balance plan be added to an existing 401(k)?
Often, yes. The 401(k) usually needs to be reviewed and sometimes amended so the two plans work together in testing. Timing and deadlines matter, so raise them early with the plan provider and your CPA.
Do I have to contribute the same amount every year?
No. The actuary sets a required range each year, and the business is expected to contribute within it. The range can change as ages, pay, staffing, and investment results change.
Compare your own figures
Results appear on this page. Nothing is emailed unless you ask.
Talk it through with Dillon
Book a 30-minute meeting with Dillon Goodman, CPA, CFP®, to review where a cash balance plan fits your business, your staff, and your existing plan. Vital Investment Management is fee-only, publishes its fees, and has no account minimums.
Book a 30-minute meeting with Dillon
Phone: (970) 776-3316
Office: 4045 St. Cloud Drive, Suite 220, Loveland, CO
Where to go next
- Retirement plan finder: compare plans for your facts.
- Owner retirement plans: an overview of plan types for business owners.
Educational comparison using IRS limits for 2026; eligibility, nondiscrimination testing, coverage, and deadlines depend on the facts and the plan documents; not tax or legal advice. Figures are contribution limits, not projections of investment results. Vital Investment Management, LLC is a fee-only, independently owned, locally based, SEC-registered investment adviser. Registration does not imply a certain level of skill or training. Form ADV · Form CRS.