Defined Benefit & Cash Balance Plans
A retirement plan that lets business owners deduct $200,000 to $300,000+ per year from taxable income — far exceeding standard 401(k) limits — while building protected retirement wealth.
A standard 401(k) allows you to contribute up to $24,500 per year in 2026. For a business owner earning $600,000, that contribution reduces your taxable income by $24,500 — saving about $8,700 in federal taxes. That is helpful but not transformative when you are paying six figures in taxes every year.
A defined benefit or cash balance plan works completely differently. Instead of a fixed dollar cap, the contribution limit is calculated by what is needed to fund a specific retirement benefit at your planned retirement age. For a business owner in their 50s earning significant income, that calculation supports annual contributions — and immediate deductions — of $200,000 to $300,000 or more per year. That is a $74,000 to $111,000 annual reduction in federal taxes at a 37% marginal rate.
A defined benefit plan promises a specific monthly retirement benefit — say, $10,000 per month starting at age 65. The annual contribution is whatever the actuary calculates is needed to fund that promise. The older you are and the higher your income, the larger the allowable contribution. This is why the strategy is most powerful for business owners in their 50s — the math works in your favor.
A cash balance plan is a hybrid that looks more like a savings account. Instead of promising a monthly benefit, it credits your account with a fixed annual percentage of your pay. The tax result is similar — large annual deductions, tax-deferred growth — but it is easier for employees to understand and often preferred when there are other employees who must be covered.
Both plans can be paired with a 401(k) profit-sharing plan, adding another $46,000 to $69,000 per year in contributions on top of the defined benefit contribution. Together, a well-designed combination can shelter $250,000 to $330,000+ of income annually.
The money grows tax-deferred inside the plan — no annual income tax on investment gains, dividends, or interest. At retirement, you pay ordinary income tax on distributions. Often at a lower rate than your working years, and sometimes in a different state.
- Full deduction in the year of contribution — $240,000 contributed reduces your taxable income by $240,000, dollar for dollar, in that tax year.
- Tax-deferred growth — no annual income tax on investment gains inside the plan. Dividends, interest, and capital gains compound without tax drag for decades.
- Creditor protection — plan assets are protected from personal creditors in most states, including malpractice judgments. This is separate from the tax benefit but equally important for physicians and other professionals.
- Can be combined with a 401(k) profit-sharing plan for even larger total contributions — the two plan types work together within IRS limits.
- Deductions are not subject to passive activity rules — they offset ordinary income from any source, including W-2 wages and S corporation distributions.
- Distributions in retirement are taxed as ordinary income — there is no capital gains treatment for retirement plan distributions. The tax is deferred, not eliminated.
- Required minimum contributions — once the plan is established, you must fund it within actuarially required ranges each year. If your income drops significantly, the required contribution can be burdensome. The plan can be frozen but not ignored.
- Employees who meet age and service requirements must be covered — if you have employees who have worked for you at least one to three years (depending on plan design) and are over 21, they must participate. Their required contributions reduce the net tax benefit to the owner.
- Early withdrawal penalty — distributions before age 59½ are subject to a 10% penalty plus ordinary income tax. Plan assets are locked up until retirement.
- Form 5500 is required every year the plan exists — late filing carries severe penalties of $250 per day up to $150,000.
Feasibility analysis and plan design
We analyze your income, age, years to planned retirement, and any employees to determine the maximum allowable contribution, the optimal plan type (defined benefit vs. cash balance vs. combination), and whether the benefit justifies the ongoing cost. For business owners with employees, we model the employee coverage cost against the owner's tax savings to ensure the net result is still favorable. This analysis happens before any external fees are incurred.
ShurekEngage an enrolled actuary
Federal law (ERISA) requires that a defined benefit plan be certified annually by an enrolled actuary — a credentialed professional who calculates the minimum required and maximum allowable contributions based on actuarial assumptions about investment returns, mortality, and retirement timing. We maintain relationships with experienced actuaries and coordinate this engagement on your behalf. You do not need to source an actuary independently.
Shurek coordinates — actuary certifiesPlan document preparation and adoption
The actuary prepares the formal plan document — a legal instrument that governs how the plan operates, who the trustees are, what the benefit formula is, and what the vesting schedule is for any employees. We review the document for tax compliance. You (as the business owner and plan sponsor) adopt the plan by executing the adoption agreement. The plan effective date determines the first year's contribution.
Actuary prepares — Shurek reviews — you executeTrust account establishment
The plan assets must be held in a trust separate from your business and personal accounts. A trust account is opened at a brokerage or bank — typically Fidelity, Schwab, or a similar custodian. You serve as the plan trustee and direct the investments within the account. The account is in the name of the plan trust, not in your personal name.
Shurek coordinates — you open the accountAnnual contribution
The actuary certifies the allowable contribution range for each plan year. You make the contribution to the plan trust account by the tax return due date — including extensions. For a calendar-year business with an October 15 extension, the contribution can be made anytime before October 15 and still be deductible for the prior year. This gives you flexibility to see your actual income before deciding on the exact contribution amount within the allowable range.
You fund — Shurek coordinates timing with your returnAnnual compliance filings
Every year the plan exists, Form 5500 must be filed by July 31. The actuary prepares Schedule SB (the actuarial certification). We prepare the Form 5500 and coordinate with the actuary to ensure everything is filed on time. The $250/day penalty for late filing makes this one of the most important deadlines we track for every client with a defined benefit plan.
Shurek prepares Form 5500 — actuary prepares Schedule SB| Form | Name | When Due | What It Does and Why It Matters |
|---|---|---|---|
| 5500 | Annual Return/Report of Employee Benefit Plan | July 31 annually (2.5-month extension available) | Required every year the plan exists — even if no contribution is made that year. Reports plan assets, participants, contributions, and the actuarial certification. Late filing triggers an automatic penalty of $250 per day up to $150,000 per year — this is not the kind of filing to forget. We track this deadline for every client with a defined benefit plan. |
| Schedule SB | Single-Employer Defined Benefit Plan Actuarial Information | Filed with Form 5500 annually | Completed by the enrolled actuary. Certifies that the plan's funding meets ERISA minimum requirements, calculates the minimum required contribution, and confirms the maximum allowable deductible contribution. This is the actuarial heart of the plan — it is what makes the large deduction legally valid. |
| 1040 / Business Return | Deduction on your personal or business return | April 15 (or extended deadline) | The plan contribution flows as a deduction on the business return (Schedule C, S corporation, or partnership) and reduces the pass-through income on your personal return. The deduction must be supported by the actuarial certification — we coordinate this timing so the deduction is claimed in the correct year. |
| 1099-R | Distributions From Pensions, Annuities, Retirement Plans | January 31 of the following year | Issued when money is distributed from the plan — whether at retirement, as a rollover to an IRA, or as any other withdrawal. The plan trustee (you) issues this form. We prepare it and ensure the distribution is reported correctly on your personal return. |
Plan design analysis, actuary coordination, Form 5500 preparation, annual contribution timing advice, and all personal and business return deduction reporting. We are your primary contact — the actuary reports to us and through us to you.
Certifies the minimum required and maximum allowable contribution each year. Prepares Schedule SB. Ensures the plan meets ERISA minimum funding requirements. An enrolled actuary credential is legally required — this cannot be waived. We coordinate the actuary relationship and review their work before it is filed.
Fund the plan by the contribution deadline. Direct the plan's investments within the trust account. Make no prohibited transactions — no loans from the plan to yourself, no using plan assets for personal purposes. Beyond that: work with us on the annual contribution decision, and plan the transition to distributions several years before your intended retirement.
The defined benefit plan has the most rigid ongoing compliance calendar of any strategy we implement. Missing the Form 5500 deadline carries a $250/day penalty. Understanding every date is essential.
Actuary Certifies Annual Contribution Range
The enrolled actuary calculates the minimum required and maximum allowable contribution for the plan year based on actual investment returns from the prior year and updated actuarial assumptions. We receive this certification and advise you on the optimal contribution amount within the allowable range.
Business Return Due — Contribution Deadline
For S corporations filing on the extended deadline, the defined benefit contribution must be deposited in the plan trust account by the extended business return due date. The deduction is claimed on the business return for the year the contribution covers. We coordinate the timing of the contribution with your estimated tax payments.
Personal Return Due
The defined benefit deduction flows from the business return to your personal Form 1040, reducing your adjusted gross income. For sole proprietors on Schedule C, the contribution is deducted directly on the 1040. We prepare the personal return in coordination with the business return to ensure the deduction is properly reflected.
FORM 5500 DUE — NO EXCEPTIONS
The most important and most penalized deadline in the entire plan compliance calendar. Form 5500 and Schedule SB (actuarial certification) must be filed with the Department of Labor by July 31. A 2.5-month extension is available (to October 15) but must be applied for by July 31. Late filing triggers an automatic $250/day penalty with no cap. We begin preparation in June for every defined benefit client.
Final Contribution Deadline (Extended Filers)
For taxpayers who extended their personal return, the final deadline for making the plan contribution and claiming the deduction for the prior year. The contribution must be in the plan account by this date — not just written. We calendar this date for every client and send reminders in September.
Investment Review Inside the Plan
The plan's investment performance directly affects future required contributions — poor returns increase the actuarially required funding. We advise on the plan's investment approach in coordination with your financial advisor, balancing the need for adequate returns with the risk profile appropriate for a defined benefit obligation.