Can I keep my 401(k) too?
If amounts are deductible under the foregoing paragraphs of this subsection (other than paragraph (5)) in connection with 1 or more defined contribution plans and 1 or more defined benefit plans or in connection with trusts or plans described in 2 or more of such paragraphs, the total amount deductible in a taxable year under such plans shall not exceed the greater of: (i) 25 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under such plans, or (ii) the amount of contributions made to or under the defined benefit plans to the extent such contributions do not exceed the amount of employer contributions necessary to satisfy the minimum funding standard provided by section 412 with respect to any such defined benefit plans for the plan year which ends with or within such taxable year (or for any prior plan year).
The greater of the two amounts, never a flat 25 percent cap. Read 26 U.S.C. 404(a)(7)(A) in full (opens in a new tab)
The short answer
A business can keep its 401(k) and add a cash balance plan beside it, and your own 401(k) deferral is untouched. When the two plans cover the same people, section 404(a)(7) caps the combined deduction at the greater of 25 percent of covered pay or the defined benefit minimum, with employer 401(k) contributions of up to 6 percent of pay left out. The cap does not apply to every plan, so ask your actuary how the combined limit applies to yours.
Can I have a cash balance plan and a 401(k)?
Yes. A business can keep its 401(k) and add a cash balance plan beside it. The 401(k) carries your own deferral, $24,500 for 2026 plus any catch-up, and any profit sharing contribution. The cash balance plan carries the larger employer contribution an actuary figures each year. One deduction rule, section 404(a)(7) of the tax code, governs the pair.
A cash balance plan is a kind of defined benefit plan, so the rules in this answer apply to it.
What your staff receive across the two plans comes from the actuary’s tests on your census, not from a fixed share.
IRS Notice 2025-67, 402(g)(1) (opens in a new tab)Internal Revenue Service, Publication 560 (opens in a new tab)How do a 401(k), profit sharing and cash balance plan stack?
The plans stack in three layers. The first is your own 401(k) deferral, $24,500 for 2026 plus the catch-up the law allows at your age. The second is the employer’s profit sharing contribution, which together with the deferral stays within $72,000 for each person. The third is the cash balance contribution the actuary sets.
| Layer | What goes in | 2026 figure | Who sets the amount | Source |
|---|---|---|---|---|
| 401(k) deferral | Your own pay, deferred into the plan | $24,500, plus a catch-up of $8,000 at age 50 and over or $11,250 at ages 60 to 63 | You, up to the limit | IRS Notice 2025-67, 402(g)(1), 414(v)(2)(B)(i), 414(v)(2)(E)(i) (opens in a new tab) |
| Profit sharing | The employer’s contribution to the 401(k) plan | Up to $72,000 for each person, counting the deferral | The employer, within the plan’s terms and the combined deduction rule | IRS Notice 2025-67, 415(c)(1)(A) (opens in a new tab) |
| Cash balance | The employer’s contribution to the defined benefit plan | No dollar cap on the contribution; the yearly benefit is capped at $290,000 | The enrolled actuary, who certifies a minimum and a maximum each year | IRS Notice 2025-67, 415(b)(1)(A) (opens in a new tab) |
Does a cash balance plan limit my profit sharing to 6 percent?
Sometimes. When a defined benefit plan runs beside a 401(k) with overlapping participants, section 404(a)(7) caps the combined deduction at the greater of 25 percent of covered pay or the defined benefit minimum. Employer 401(k) contributions of up to 6 percent of pay are left out of that cap, and employee deferrals never count.
The cap does not apply at all to a defined benefit plan the Pension Benefit Guaranty Corporation (PBGC) covers. The PBGC does not cover a professional service employer’s plan that has never had more than 25 active participants at any time after September 2, 1974, or a plan maintained only for substantial owners, meaning owners of more than 10 percent. A 412(e)(3) plan counts as a defined benefit plan for this rule.
In the case of employer contributions to 1 or more defined contribution plans (I) if such contributions do not exceed 6 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under such plans, this paragraph shall not apply to such contributions or to employer contributions to the defined benefit plans to which this paragraph would otherwise apply by reason of contributions to the defined contribution plans, and (II) if such contributions exceed 6 percent of such compensation, this paragraph shall be applied by only taking into account such contributions to the extent of such excess.
Read 26 U.S.C. 404(a)(7)(C)(iii) in full (opens in a new tab)
Can I add a cash balance plan to my solo 401(k)?
Yes. You can add a defined benefit plan beside a solo 401(k), and your own deferral is untouched. A defined benefit plan maintained only for substantial owners sits outside PBGC coverage, so the section 404(a)(7) combined deduction limit can reach the employer profit sharing contributions in your 401(k).
The actuary designs the defined benefit contribution and the profit sharing amount together, so the pair stays within what the business may deduct.
29 U.S.C. 1321(b)(9) and (d) (opens in a new tab)26 U.S.C. 404(a)(7)(C)(iv) (opens in a new tab)What if I already made contributions this year?
Your own 401(k) deferrals never count toward the combined deduction limit. Employer contributions already made this year do count when the actuary applies the combined limit and the 6 percent carve-out, so the actuary designs the new plan around them. An employer contribution above what the business may deduct draws a 10 percent excise tax.
26 U.S.C. 404(a)(7)(C)(iii) (opens in a new tab)26 U.S.C. 4972(a) (opens in a new tab)How the deduction turns into a tax figure: How much tax will I save?
What are the risks?
The IRS lists the defined benefit plan as the most costly and the most administratively complex type of plan. The contribution is mandatory each year within the actuary’s range, and an unpaid minimum is taxed at 10 percent, then 100 percent. The employer bears the investment risk: benefits do not depend on asset returns, so a shortfall raises future contributions.
The money is locked until age 59½, separation or plan termination, with a 10 percent additional tax on early distributions. Staff must be covered and credited under federal tests. Fees for the actuary, the administrator and the filings are paid every year.
Internal Revenue Service, Defined benefit plan page (opens in a new tab)26 U.S.C. 4971(a)(1) and (b) (opens in a new tab)26 U.S.C. 72(t)(1) (opens in a new tab)Checked on October 15, 2026.