Defined Benefit Plan
Authority: IRC §§412, 415(b)
A defined benefit plan is a pension the business promises to fund, and it supports by far the largest deductible retirement contributions in the code: an actuary calculates the annual funding needed to provide a target retirement benefit (up to an indexed limit of $280,000 per year for 2025), and for a high-earning owner in her 50s that funding requirement, and deduction, routinely lands between $100,000 and $300,000 or more per year. The cash balance variant expresses the benefit as an account balance and is the common modern design. The plan stacks with a 401(k), enabling combined deductions well past $300,000. The costs of admission: contributions are largely mandatory each year (unlike a SEP), an actuary and annual Form 5500 filing are required, employees must be covered under nondiscrimination rules, and the plan should be expected to run several years. Best fit: consistently high-income owners over 45 with few or no employees who want maximum deferral.
Example
A 55-year-old physician with $700,000 of practice income adopts a cash balance plan. The actuary sets first-year funding at $220,000; combined with her solo 401(k) she deducts about $290,000, saving over $110,000 of current tax.
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