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High-Income Client Strategy: 401(k) + Cash Balance Combo

March 3, 2026 By Kate Bartolome Newsletter

As a CPA advising high-income business owners, you routinely help clients maximize their 401(k) plans. But many still leave substantial tax savings on the table. Adding a cash balance plan can allow substantial additional tax-deductible contributions for owners, especially those nearing retirement age, dramatically accelerating wealth accumulation while reducing current-year taxable income.

Why the Combination Outperforms a Standalone 401(k)

For 2026, the numbers tell the story:

401(k) limits. Employee elective deferral of $24,500, plus catch-up of $8,000 for those turning age 50 or older ($11,250 for those ages 60-63). Limit on annual additions under Section 415(c) is $72,000 (plus catch-up). Employer profit-sharing contributions are capped at 25% of compensation (or the overall DC limit).
Cash Balance added. As a defined-benefit (DB) plan, a cash balance plan is not subject to the fixed contribution cap applicable to 401(k) plans. Contributions are actuarially determined to fund a promised hypothetical account balance that grows with annual pay credits (e.g., 5-8% of compensation) plus an interest credit (e.g., 3-5%). Benefits generally are limited by the Section 415(b) annual benefit limit at normal retirement age ($290,000 for 2026).

When properly designed and layered, the same owner can receive: (1) the maximum 401(k) deferral & employer contribution, and (2) a significantly larger cash balance accrual.

Tax-Planning Power: Immediate Deductions + Deferred Growth

Contributions to fund a cash balance plan are generally deductible as business expenses under Section 404(a), without the 25% compensation limit that applies to DC plans.

Example: A 57-year-old solo orthopedic surgeon with compensation of $420,000 implements a 401(k) and cash balance combo for 2026.

401(k) component: $32,500 employee deferral (age 50+ catch-up) + $47,500 employer profit-sharing = $80,000 total ($72,000 annual additions + $8,000 catch-up contributions)
Cash balance contribution: $255,000 (actuarially required to fund the plan)
Total retirement contribution: $335,000 ($80,000 + $255,000)

At a combined 45% marginal rate (federal 37% + 8% state), this generates $147,150 in immediate tax savings (i.e., 45% x ($335,000-$8,000)). Catch-up contributions for high earners must generally be made as Roth contributions.

When modeling retirement plan contributions, remember that for many qualified plan contributions, the compensation taken into account is limited by Section 401(a)(17) ($360,000 for 2026), even if actual compensation is higher.

Some Practical Considerations for Your Clients

While cash balance plans can allow for substantial benefit accruals and significant tax savings, there are setup and ongoing costs for clients to be aware of, including plan document costs, actuarial services, and potential PBGC premiums. In addition, the law includes mandatory funding requirements, so cash balance plans are best for businesses and individuals with consistent strong cash flow.

As a CPA, you are uniquely positioned to spot tax opportunities for your clients and guide them to the solutions that are best for them. For the right client, a cash balance plan can be a valuable tool for accruing wealth.

Jesse St. Cyr, Partner, Poyner Spruill
Jesse is a member of the Employee Benefits and Executive Compensation team at Poyner Spruill LLP. He represents clients before the IRS and DOL in matters involving employee benefits. Jesse has experience working with a diverse range of benefits and compensation matters and has extensive experience working with a variety of employers. Jesse is recognized by Chambers USA as a leading lawyer for Business (Employee Benefits & Executive Compensation).

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High-Income Client Strategy: 401(k) + Cash Balance Combo

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