Defined benefit plan or solo 401(k)?
Effective January 1, 2026, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) of the Code is increased from $280,000 to $290,000.
A yearly benefit limit, not a contribution limit. Read IRS Notice 2025-67 in full (opens in a new tab)
A solo 401(k) caps what goes into the owner's account, while a solo defined benefit plan caps the yearly benefit it may pay and an enrolled actuary figures the contribution, and an owner can run the two side by side.
What is the difference between a solo 401(k) and a defined benefit plan?
A solo 401(k) is a 401(k) for an owner with no employees, and the law caps what goes into the account at $72,000 for 2026, not counting catch-up contributions. A solo defined benefit plan caps the yearly benefit instead, at $290,000 for 2026, and an enrolled actuary figures the contribution that funds it.
IRS Notice 2025-67 (opens in a new tab)IRS, One-participant 401(k) plans page (opens in a new tab)| Rule | Solo defined benefit plan | Solo 401(k) | Source |
|---|---|---|---|
| What the law calls it | A defined benefit plan: any plan that is not a defined contribution plan. | A traditional 401(k) covering an owner with no employees, or the owner and a spouse, with the same rules as any other 401(k). | 26 U.S.C. 414(i) and (j) (opens in a new tab)IRS, One-participant 401(k) plans page (opens in a new tab) |
| What the 2026 limit caps | The annual benefit: $290,000, or 100 percent of average pay for the highest 3 years if lower. No dollar limit on the contribution. | Total additions to the account: $72,000, not counting catch-up contributions. | IRS Notice 2025-67 (opens in a new tab)26 U.S.C. 415(b)(1)(B) (opens in a new tab)IRS, One-participant 401(k) plans page (opens in a new tab) |
| The owner’s own deferral, 2026 | Generally none. The employer makes most contributions. | $24,500. A catch-up of $8,000 generally applies for individuals aged 50 or over, and a catch-up of $11,250 applies for individuals who attain age 60, 61, 62, or 63 in 2026. | IRS Notice 2025-67 (opens in a new tab)Internal Revenue Service, Defined benefit plan page (opens in a new tab) |
| Pay the plan may count, 2026 | $360,000 | $360,000 | IRS Notice 2025-67 (opens in a new tab) |
| Who figures the amount | An enrolled actuary must figure the deduction limit, set the funding level and sign Schedule SB each year. | The owner, as employee and as employer, within the limits. A self-employed owner’s pay is earned income after a special computation. | Internal Revenue Service, Publication 560 (opens in a new tab)Internal Revenue Service, Defined benefit plan page (opens in a new tab)IRS, One-participant 401(k) plans page (opens in a new tab) |
| Is a contribution required every year? | Yes. The minimum is due eight and a half months after the plan year ends, and an unpaid minimum is taxed at 10 percent. | No. The federal minimum funding rules do not apply. | 26 U.S.C. 430(j)(1) (opens in a new tab)26 U.S.C. 4971(a)(1) (opens in a new tab)26 U.S.C. 412(e)(2)(A) (opens in a new tab) |
| Who carries the investment risk | The business. Benefits do not depend on asset returns, so a shortfall raises later contributions. | The owner. The account rises and falls with its investments. | Internal Revenue Service, Defined benefit plan page (opens in a new tab)26 U.S.C. 414(i) and (j) (opens in a new tab) |
| If the owner hires employees | The plan must cover and credit staff who become eligible, under federal participation and coverage tests. | Eligible employees must be brought into the plan, and their deferrals are tested unless the plan is designed to be exempt. | 26 U.S.C. 401(a)(26) (opens in a new tab)IRS, One-participant 401(k) plans page (opens in a new tab) |
Is a solo 401(k) a defined benefit plan?
No. The IRS says a one-participant 401(k), often called a solo 401(k), is a traditional 401(k) covering a business owner with no employees, or the owner and a spouse. A solo 401(k) is a defined contribution plan, with an account for the owner that rises and falls with its investments.
A solo defined benefit plan is a different plan, with its own document, its own enrolled actuary and a contribution the owner must make each year. An owner can hold both plans at the same time.
IRS, One-participant 401(k) plans page (opens in a new tab)26 U.S.C. 414(i) and (j) (opens in a new tab)Can I have a cash balance plan and a solo 401(k) at the same time?
Yes. The IRS says an employer with a defined benefit plan can have other retirement plans. The owner keeps the 401(k) deferral, $24,500 for 2026, and section 404(a)(7) of the tax code then caps the combined deduction for the employer contributions to both plans.
A cash balance plan is a kind of defined benefit plan, so the rules in this answer apply to it.
The cap is the greater of 25 percent of covered pay or the defined benefit minimum, and employer contributions to the 401(k) of up to 6 percent of pay are left out of it. The cap does not apply to a plan the PBGC covers. The PBGC, the federal pension insurer, does not cover a plan kept only for substantial owners: the whole owner of an unincorporated business, or an owner of more than 10 percent, counted over a 60-month look-back.
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.
Employer contributions to a 401(k) of 6 percent of pay or less are left out of the combined limit. Employee deferrals are handled separately. Read 26 U.S.C. 404(a)(7)(C)(iii) in full (opens in a new tab)
What does a solo defined benefit plan ask of an owner that a solo 401(k) does not?
The IRS lists the defined benefit plan as the most costly type of plan and the most administratively complex one. The contribution is mandatory each year within the range the enrolled actuary certifies, and an unpaid minimum is taxed at 10 percent, then 100 percent if the amount stays unpaid.
The employer bears the investment risk. Benefits do not depend on asset returns, so a shortfall raises future contributions. The money stays in the plan until age 59½, separation from service or the end of the plan, and a distribution before 59½ carries a 10 percent additional tax unless an exception applies. 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); 26 U.S.C. 4971(b); 26 U.S.C. 72(t)(1) (opens in a new tab)Checked on October 15, 2026.