Does my business qualify?

Answer five questions about your business and the page shows a first read: yes, maybe or not now. The read prints no dollar figure and asks for no names. The questions cover headcount, your age, the amount you want to put away, how steady profit is, and how your employees compare with you in age and pay.

Any employer can sponsor a defined benefit plan, including an owner with no employees. The IRS says a plan “Can be a business of any size” and “Can have other retirement plans.” The plan fits best when the owner wants to put away more than a 401(k) allows, profit is steady, and most staff are younger and lower paid.

A cash balance plan is a kind of defined benefit plan, so the rules in this answer apply to it.

For 2026, a 401(k) with profit sharing stops at $72,000 of total additions for one person. Federal law sets no dollar limit on a defined benefit contribution. The law caps the benefit instead, and an enrolled actuary figures the contribution needed to fund it from the owner’s age and pay.

A defined benefit plan must also cover and benefit employees under federal tests. The exact staff share for your company comes only from the actuary’s test on your census.

The staff tests in full: What do my employees get?

A plan is worth it when the deduction above a full 401(k) is large, the owner’s tax rate is high, profit carries the contribution every year, and the staff share is small next to the owner’s. The IRS states the trade: an employer can contribute and deduct more, and it is the “Most costly type of plan.”

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.

A defined benefit plan defers tax. Contributions are deducted now and taxed as ordinary income when paid out.

How a deduction becomes a tax figure: How much tax will I save?

No law sets a minimum profit. The practical test is the amount you want to put away. If it is under $72,000 for 2026, a defined contribution plan such as a 401(k) with profit sharing can generally hold it with no yearly funding floor, so a pension would add cost and a mandatory contribution you do not need yet.

Two publishers’ own screens point higher, and neither is law. One brokerage’s personal defined benefit plan looks for “annual contributions of $90,000 or more for at least five years”, which is that brokerage’s own product rule. The Tax Adviser's low end for owners in their 50s or 60s is $150,000 a year, in its December 2025 issue.

No federal rule sets a minimum or maximum age for an owner to sponsor a defined benefit plan. Older owners can contribute more because fewer years remain to fund the same capped benefit. The honest answer for your age is the actuary’s illustration on your census, built from your own pay and your own years to retirement.

Age minimums on provider pages are product rules. One brokerage’s personal defined benefit plan is built for owners age 50 or over, which is that brokerage’s rule, not the law’s. A younger owner can sponsor a plan, but the yearly contribution is smaller because the capped benefit is spread over more years, and the money stays in the plan until age 59½, separation or the end of the plan.

Profit has to be steady enough to pay the minimum contribution every year. Each year the enrolled actuary certifies a minimum and a maximum, and the minimum is due eight and a half months after the plan year ends. An unpaid minimum draws a 10 percent excise tax, rising to 100 percent if it stays unpaid.

In a hard year an employer can pay only the minimum, draw on a prefunding balance built in better years, amend the plan to reduce future credits after giving participants notice, or apply to the IRS for a hardship waiver, which is allowed in no more than 3 of any 15 plan years. None of those tools cuts a benefit already earned.

What a bad year does, in order: What are the risks?

No. A business with no employees other than the owner, or the owner and a spouse, can sponsor a defined benefit plan. With no staff there is no staff share and no coverage test, and the plan files the short Form 5500-EZ. The contribution then turns on the owner’s own age and pay.

Two things change. An owner-only plan is outside Title I of ERISA, the federal pension law, so its creditor protection rests on the tax code and state law rather than on ERISA. A plan maintained only for substantial owners, meaning owners of more than 10 percent of the business, is not covered by the PBGC, the federal pension insurer.

Every common type of business can sponsor a defined benefit plan: an S corporation, a C corporation, a partnership, a sole proprietor and a single-member LLC. The type of business changes two things and leaves eligibility alone: where the deduction is reported, and which pay the plan counts for the owner.

For 2026 a plan counts no more than $360,000 of any participant’s pay. Reasonable compensation rules apply to S corporation wages.

Yes. The S corporation sponsors the plan and deducts the contribution on Form 1120-S. Only the owner’s W-2 wages count as plan pay, up to $360,000 for 2026, so the wage the owner draws sets the ceiling, and that wage must still be reasonable compensation under IRS rules.

The IRS fact sheet on officer pay says “There are no specific guidelines for reasonable compensation in the Code or the Regulations.” A wage set low to save payroll tax also shrinks the pay the plan can count.

Yes. A C corporation sponsors the plan and deducts the contribution on its corporate return, Form 1120. The owner’s W-2 wages are the plan pay, counted up to $360,000 for 2026, and the deduction ceiling in section 404(o) applies to the corporation as it does to any other single-employer sponsor.

IRS Publication 560 puts the ceiling plainly: “an actuary must figure your deduction limit.” For a calendar 2026 plan year the minimum is due September 15, 2027, and an extended C corporation can deduct a contribution paid by October 15, 2027.

Both dates, by type of business: When is the deadline to start?

Often yes, inside the nondiscrimination tests. A plan can give different groups of participants different credits if the plan passes those tests on the census. A partnership reports the plan on Form 1065 and passes each partner’s own share through on Schedule K-1, box 13, code R, for the partner to deduct personally.

For a defined benefit plan, the partnership attaches a statement to each partner’s Schedule K-1 showing the benefit accrued for the tax year. A partner’s plan pay is earned income, figured after the plan deduction itself.

Yes. A sole proprietor, or a single-member LLC taxed as one, can sponsor a defined benefit plan. The owner’s own contribution is deducted as an adjustment to income under section 62(a)(6), and any employee share is a business expense. Plan pay is earned income, figured after the plan deduction itself.

Because plan pay is figured after the plan deduction, the two numbers depend on each other, and the actuary and your CPA settle them together. An LLC that elected to be taxed as an S corporation is treated as an S corporation.

Yes, if the 1099 income comes from a business you run. A W-2 job elsewhere does not block a plan for the side business, but the plan counts only the side business’s own earned income, figured after the plan deduction. Businesses you control are tested together, so a side business with staff of its own changes the census.

A contractor who later becomes someone else’s employee keeps the plan but may have no business income left to fund it, and the minimum is still due each year.

Dental, medical, law, accounting and similar professional practices often fit the profile: an owner with high, steady pay, a small staff that is often younger and lower paid, and a 401(k) already in place. The fit still turns on your census, not your title, because the staff tests run on the people you employ.

The PBGC, the federal pension insurer, insures most private defined benefit plans, but not all. A plan of a professional service employer, such as a medical, dental, law, accounting or architecture practice, is not covered if the plan has never had more than 25 active participants at any time after September 2, 1974. A plan maintained only for substantial owners, meaning owners of more than 10 percent of the business, is not covered either. Paying PBGC premiums does not make an excluded plan covered. Ask the actuary whether your plan is covered before anyone tells you it is insured.

For a dental practice: Should dentists use a cash balance plan?

Yes. Any profitable business can sponsor a defined benefit plan. Two things differ outside the professions. The professional service exclusion from PBGC coverage does not apply, so the plan may be covered and owe PBGC premiums unless it is maintained only for substantial owners. A larger hourly staff can also raise the share employees must receive.

A covered single-employer plan pays the PBGC a flat premium of $111 per participant for plan years beginning in 2026, plus a variable premium on any unfunded vested benefits.

Every yearly cost of a plan: What does a plan cost?

Only if the work fits the statute’s list. The PBGC exclusion covers a professional service employer, and the statute’s list of professional individuals names physicians, dentists, attorneys, public accountants, architects and others. The list is not exhaustive, so a business outside it may or may not count, and the PBGC has ruled on particular trades.

In one of its opinion letters the PBGC concluded that opticians are not professional individuals, so an opticians’ plan was not excluded from coverage on that ground.

If you own, or your family owns, more than one business, federal rules may treat all of them as one employer for plan testing. Owning a second company does not by itself keep its employees out of your plan. Ask the actuary to run the controlled group and affiliated service group analysis before anything is designed.

Section 414 of the tax code says so in its own words. For plan purposes “all employees of all corporations which are members of a controlled group of corporations” are treated as employed by a single employer, and the same holds for businesses “under common control” and for “all employees of the members of an affiliated service group.”

Skip it, or wait, when profit swings, when you may want the money back within a few years, when a sale or wind-down is likely soon, or when employees are about as old or as well paid as the owners. The same holds when the amount you want to put away fits inside a 401(k).

• Money you will want back soon. Money comes out taxed, and before age 59½ a 10 percent additional tax applies unless an exception does.
• Skipping years. The minimum is not optional, and an unpaid minimum draws the 10 percent excise tax.
• A likely sale or wind-down. Abandoning a plan within a few years for a reason other than business necessity is evidence that it was never a real plan, and surplus returned to the employer when a plan ends is taxed at 50 percent, or 20 percent if the employer keeps a qualified replacement plan or grants pro rata benefit increases.
• Staff about as old or as well paid as the owners. Their share of each year’s contribution can outweigh the owner’s tax saving.

When money can come out: When can I take money out?

What ending a plan takes: How do I end the plan?

Prepare your census, then upload it through your Defined Benefits client portal account.

Send a census