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A Kiplinger report describes how some profitable business owners may combine a 401(k) with a cash balance pension plan to make larger tax-deferred retirement contributions. The contribution figures are estimates, not guaranteed amounts, and a cash balance plan generally must be established by year-end for the business to claim a deduction for that tax year.
A Kiplinger report on retirement planning says profitable business owners who already contribute to a 401(k) may be able to save additional pre-tax money through a cash balance plan, a type of defined-benefit pension plan. The report says the plans can operate together, but contribution amounts depend on individual circumstances and a cash balance plan generally must be established by December 31 to qualify for a deduction in that tax year.
The report cites a $24,500 employee contribution limit for 401(k) plans in 2026 and a combined employee-and-employer limit of $72,000. It also lists catch-up contribution limits of $8,000 for people 50 and older and a super catch-up of $11,250 for people ages 60 to 63, where the plan permits it. These are figures presented by the report; readers should check current IRS guidance and their plan terms.
A cash balance plan is not simply another 401(k) account. It is a defined-benefit plan whose funding requirements are calculated actuarially. According to the report, permitted contributions depend on factors including age, compensation and plan design. It estimates that a 50-year-old business owner might contribute about $175,000 or more annually, while contributions for someone age 60 could approach $290,000. Those examples are not universal limits or promises of eligibility.
The report gives estimated combined annual pre-tax savings of roughly $172,000 to $222,000 for a business with $500,000 in gross revenue, $222,000 to $272,000 at $1 million, and $247,000 to $362,000 or more at $2 million or above. It labels cash balance plan contributions as actuarially determined. Gross revenue alone does not establish how much an owner can contribute, and the report advises consulting an enrolled actuary and a qualified tax adviser before adopting a plan.
How Plan Design Affects Savings
The report’s central point is that a 401(k) limit may not represent the full retirement-plan contribution opportunity for every business owner. A properly designed cash balance plan may allow higher contributions, particularly for older owners with sufficient, consistent income. That can affect both retirement funding and the timing of taxable income.
The trade-off is that a defined-benefit plan requires actuarial calculations and ongoing administration. The large estimates in the report should not be read as a tax outcome available to every company. Business owners need to weigh expected contributions, plan costs, employee coverage and future funding obligations with qualified professionals. The article also raises estate coordination: under current rules, many non-spouse beneficiaries must distribute inherited retirement accounts within 10 years, though the tax effects depend on the beneficiary and account.
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Year-End Rules and Plan Timing
The report distinguishes the timing rules for the two plan types. It says a 401(k) may in some cases be established and funded by the business’s tax-filing deadline, including extensions, while a cash balance plan generally must be adopted by December 31 for a deduction in that tax year. The precise rules can depend on circumstances and should be confirmed with a tax professional.
Because plan design, actuarial work and administration take time, the report urges owners to begin discussions before year-end rather than assume they can make the decision during tax filing. It describes a business owner who had delayed investigating the option, but that anecdote does not establish how common the situation is or what savings a particular owner could achieve.
“A cash balance plan and a 401(k) can run simultaneously.”
— Kiplinger report
What Owners Must Verify First
The report does not provide enough information to calculate an individual owner’s eligible contribution, tax savings or plan costs. Those figures depend on the owner’s age and compensation, business structure, employees, plan terms and actuarial assumptions. Its revenue-based examples are estimates rather than personalized projections.
The source material also does not specify the administrative expenses, required funding schedule or employee participation obligations for each example. The stated limits and deadlines should be verified against current IRS rules and professional advice before a business acts. No particular business owner’s eligibility or tax result is confirmed by the report.
Steps Before the Year-End Deadline
Business owners considering the strategy can ask a qualified tax adviser and a licensed enrolled actuary to assess eligibility, model contributions and explain setup and ongoing obligations. The report suggests comparing a proposed plan with the business’s prior-year finances and asking how contributions could affect taxes over several years.
Owners interested in a deduction for the current tax year should confirm the applicable adoption deadline promptly, rather than rely on the 401(k) filing-extension timeline. The next concrete milestone is a professional review of plan design and costs; the report does not identify a later policy change or a confirmed outcome for any individual business.
Key Questions
Can a business owner have both a 401(k) and a cash balance plan?
According to the Kiplinger report, the plans can operate at the same time. Whether a specific business can adopt both, and the contribution amounts involved, requires review of plan rules and individual circumstances.
How much can a business owner contribute to a cash balance plan?
There is no single amount that applies to every owner. The report says contributions are actuarially determined and vary with factors such as age, compensation and plan design; its examples are estimates, not guarantees.
Does a cash balance plan have to be established by December 31?
The report says a plan generally must be established by December 31 for a deduction in that tax year. Owners should confirm the deadline and rules for their circumstances with a qualified tax professional.
Are the report’s savings estimates based only on business revenue?
No. The report presents examples by gross-revenue range, but also says cash balance contributions depend on actuarial factors, including age, compensation and plan design. Revenue alone does not determine an owner’s contribution.
Source: kiplinger.com
