When a 401(k) Isn't Enough
This is one of the most common conversations I have with CPAs and financial advisors — a high-income business owner is maxing out their 401(k) and assumes that's about as good as it gets for retirement savings. Often it's not.
A CPA called me a few weeks ago about Dr. Jones, a 52-year-old neurologist earning $350,000 on W-2 who owns his own medical practice. He was already maxing out his solo 401(k) profit sharing plan. The CPA wanted to know if there was anything else worth considering. There was.
We established a Cash Balance pension plan for the 2025 plan year. With the Cash Balance plan in place, the full contribution picture looked like this:
Cash Balance pension plan: $225,000
401(k) employee deferral (including catch-up): $31,000
Profit sharing contribution: $21,000
Total: $277,000, up from $77,500 without the Cash Balance plan. At a combined federal and state rate above 40%, that additional $199,500 in deductions translates to roughly $80,000 in tax savings in a single year.
Because the practice was on extension, we were still able to establish the Cash Balance plan before the September 15 deadline.
I also flagged a 2026 opportunity: adding Dr. Jones's spouse to the practice payroll at a $40,000 W-2 salary. That creates roughly $75,000 in additional annual retirement plan contributions for the family:
401(k) deferral: ~$32,500
Profit sharing: ~$2,400
Cash Balance contribution: ~$40,000
One hire, one payroll addition, $75,000 more sheltered per year.
A different scenario: a law firm with two partners, both age 45. Each partner could contribute approximately $160,000 to a Cash Balance pension plan on top of their 401(k) profit sharing plan. Different profession, different entity, same question: is a 401(k) alone still the right fit for this client?
The main variables that drive all of this are plan compensation and age. For corporations, plan compensation starts with W-2 wages. For sole proprietors and many LLCs, it's self-employment income from Schedule C net earnings or K-1 income, depending on the entity. Those numbers, combined with the owner's age and years of service, are where every Cash Balance plan design begins. The older the owner, the higher the allowable contribution, but compensation and service are equally important in determining how much can go in.
If the owner consistently maximizes a 401(k), the question isn't whether they can contribute more. It's whether their plan structure still fits where they are today.
If you or your client may have outgrown a standalone 401(k), I'm always happy to talk through the options. You can also subscribe to receive articles like this monthly at heliodorus.com/newsletter.
— Alex Free, EA, CPC, QPA, QKA
Principal & Enrolled Actuary, Heliodorus LLC
