Solo 401(k) vs. Cash Balance Plans

Solo 401(k) vs. Cash Balance Plans: How Small Business Owners Can Max Out Their Retirement Savings

When you run your own business, you don’t get a company 401(k), a pension, or any of those tidy automatic deductions corporate employees take for granted. But you may gain more control over how much you save and how much you keep from the IRS each year.

At Correct Capital Wealth Management, we help small business owners, professional practices, and solo entrepreneurs design retirement plans that actually fit the way they earn. Two of the most powerful tools are the Solo 401(k) and the Cash Balance (or Defined Benefit) Plan.

Each has its strengths, and when used together, they can create a retirement-savings engine that works harder than most people think possible.

Schedule a meeting with a member of our advisory team today.

Why These Plans Work for Self-Employed High Earners

If you own your business — whether you’re a doctor, dentist, attorney, consultant, or married team running an LLC — you have flexibility that W-2 employees don’t. You decide how much to contribute, when to contribute, and how to structure your plan.

The trick is knowing which plan gives you the right balance between flexibility, complexity, and tax savings. That’s where Solo 401(k)s and Cash Balance Plans come in.

Here’s the short version:

• Solo 401(k): Simple, flexible, and great for one-person or husband-and-wife businesses.
• Cash Balance Plan: A more sophisticated, actuarial-based plan that lets high earners save well beyond normal 401(k) limits.
• The power move: Use both. You get the flexibility of a 401(k) and the high contribution limits of a pension-style plan.

The Solo 401(k): Designed for Owner-Operators

The Solo 401(k), sometimes called an “Individual 401(k),” is built for self-employed individuals with no full-time employees besides a spouse. It combines two roles you play as a business owner: employee and employer.

Here’s how it works:

• As the employee, you can defer up to the current IRS limit (with catch-ups if you’re 50 or older).
• As the employer, you can contribute a profit-sharing amount — up to a percentage of your net income or W-2 wages.
• Those two layers together can create a sizable annual contribution, especially when your spouse also earns income from the business.

Why we sometimes recommend it:

• Contributions are discretionary — you can skip a year or max out depending on your cash flow.
• Administrative costs are low.
• You can choose traditional (pre-tax) or Roth (after-tax) deferrals for flexibility.
• It’s a great foundation for small practices or consultants who want structure without complexity.

Where it falls short:

The total contribution limit (deferral + profit-sharing) can only reach a fixed dollar amount or a percentage of compensation, whichever is less. Once an owner hits that limit, they can’t legally put in more, no matter how much profit they have. That’s why high-income folks quickly “cap out” on what the Solo 401(k) can shelter and start looking at Cash Balance or Defined Benefit plans, which sit under a different set of contribution rules and allow far larger, age-based deductions.

The Cash Balance Plan: Tax Deferral for High Earners

A Cash Balance Plan looks like an account balance on paper, but it’s legally a defined benefit plan, essentially a cousin of the traditional pension. That means the plan promises a set “benefit” amount at retirement, and contributions are calculated backwards to hit that target.

Translation: the older and higher-earning you are, the more you can contribute, even up to several times what a 401(k) allows.

A few hallmarks:

• Actuarial structure: You’ll need an actuary to certify contributions each year.
• Mandatory funding: Once established, it’s designed for ongoing contributions, not one-off deposits.
• Huge deductions: It can shelter hundreds of thousands in pre-tax contributions annually for mature, profitable firms.
• Predictable growth: The plan assumes a steady “crediting rate,” so investments aim for moderate, consistent returns rather than big swings.

Cash Balance Plans are particularly attractive for:

• Doctors, dentists, and attorneys in private practice
• Consultants or agency owners with steady cash flow
• Family businesses where both spouses earn income
• Solo professionals in their 40s, 50s, or 60s who want to catch up fast

Why It Might Be a Good Idea to Combine the Two

A Solo 401(k) gives you flexibility. A Cash Balance Plan gives you scale. Together, they can help you maximize retirement savings without inflating payroll or sacrificing liquidity.

Example:

A 52-year-old attorney runs a small S-Corp with $350,000 in annual income.

• The Solo 401(k) allows elective deferrals and profit-sharing, potentially totaling around the annual limit.
• A Cash Balance Plan on top of that could add another $100,000–$200,000 in deductible contributions, depending on age and actuarial design.
• Combined, the strategy could move a significant portion of taxable income into long-term retirement savings — legally and efficiently.

The combo strategy works best when:

• You have consistent business profits
• You’re already maxing out a 401(k) or SEP IRA and want to do more
• You expect to keep the business for several years
• You can handle some extra administrative cost and discipline

Correct Capital helps clients evaluate whether this pairing makes sense, run contribution projections, and coordinate with actuaries and third-party administrators to ensure every part works together.

How These Retirement Plans Fit Different Business Scenarios

Solo professional or married team

You’re running the show yourself as maybe a consultant, designer, attorney, or married couple with an LLC. Start with a Solo 401(k) to take advantage of both employee and employer contributions while keeping costs and paperwork light. Once profits rise and you hit the annual contribution ceiling, add a Cash Balance Plan to keep deferring more pre-tax income.

Example: A husband-and-wife dental practice earning $350,000 contributes the full Solo 401(k) limit. When income climbs past $400,000, they add a Cash Balance Plan that allows an extra $100,000+ per year in deductible contributions, cutting taxes while rapidly building retirement savings.

Established small business or professional practice

You’ve got a consistent revenue stream, a few 1099 contractors, and maybe a spouse on payroll. You want to move beyond the 401(k) ceiling and make the most of your high-income years.

By layering a Cash Balance Plan on top of your Solo 401(k), you can multiply your annual savings — often two to three times the 401(k) limit — and maintain flexibility through the 401(k) portion for Roth or discretionary contributions.

Example: A 50-year-old financial consultant earning $450,000 uses both plans. The Solo 401(k) covers elective and profit-sharing contributions, while the Cash Balance Plan adds roughly $150,000 in additional pre-tax funding, all managed within one coordinated strategy.

Late-career high earner

You’ve built your business and want to make up for lost time. Cash Balance Plans allow age-based contributions, meaning the older you are, the more you can legally put away.

Combined with a Solo 401(k), that can create massive retirement acceleration in your final working decade.

Example: A 58-year-old attorney with $500,000 in income contributes the annual Solo 401(k) maximum, then adds a Cash Balance Plan that allows an additional $200,000 deduction. In five years, that’s roughly $1 million shifted from taxable income into retirement savings.

Independent professional with fluctuating income

Your business has good years and slow ones — think real estate agents, consultants, or contractors. A Solo 401(k) keeps things flexible during leaner times, and you can dial up or pause contributions. When your revenue stabilizes, a Cash Balance Plan can help you stash extra profits tax-deferred in the big years.

Example: A marketing consultant averaging $200,000 but occasionally topping $300,000 maxes the Solo 401(k) each year and makes larger Cash Balance contributions only when cash flow allows. Both plans adjust as income ebbs and flows.

Things to Know Before Starting

• Plan deadlines: Solo 401(k)s generally must be established by the end of the tax year, though contributions can continue until your filing date. Cash Balance Plans require setup and actuarial certification — ideally by fall to allow enough time for calculations.
• Entity type matters: S-Corp, partnership, or sole proprietorship determines how contributions are calculated.
• Investment management: Cash Balance assets are usually invested conservatively to match the plan’s credited interest rate. Your Solo 401(k) can take more market risk since it doesn’t have fixed promises.
• Administrative layers: Cash Balance Plans require an actuary and annual filings (Form 5500). The Solo 401(k) only needs minimal reporting once balances exceed certain thresholds.

Yes, Cash Balance Plans are more expensive to run. There’s annual actuarial work, compliance testing, and potentially higher plan administration costs. But for many owners, the tax deduction alone outweighs those fees several times over.

In addition to tax benefits, disciplined, high-velocity retirement savings can move hundreds of thousands of dollars out of taxable income into long-term security.

Correct Capital’s role is to make that process feel less like paperwork and more like strategy. We coordinate the investment design, cash-flow analysis, and plan administration so you don’t have to juggle three different vendors just to save efficiently.

Ready to See What You Could Be Saving?

Every business owner’s situation is different. The right combination of plans depends on your income, entity structure, staff size, and retirement timeline. Correct Capital can model contribution scenarios, compare plan options, and coordinate the setup from start to finish.

If you’re ready to explore how a Solo 401(k) and Cash Balance Plan could accelerate your retirement savings, schedule a call with our team today.

You can give us a call at (877) 930-4015, contact us online, or schedule a meeting with a member of our advisory team today.