Shelter 100K Plus Each Year With a Defined Benefit Plan
Your 2025 playbook to use cash balance/DB plans to move six figures pre-tax—without blowing up payroll, testing, or deadlines.
If you’re a profitable owner in your 40s, 50s, or early 60s, a defined benefit (DB) plan—usually a cash balance plan—can shift $100,000+ a year from taxable income into long-term wealth. Unlike a 401(k), where you encounter a contribution ceiling, DB plans allow an actuary to set your annual funding range based on a promised retirement benefit, which is why older owners can save much more. The tradeoff: you’re accepting real funding and compliance obligations each year—this is an “adult plan,” not a sidecar.
2025 makes this even more attractive. Key limits rose again: the 401(k) deferral is $23,500; the overall defined contribution (DC) limit is $70,000; the DB annual benefit cap is $280,000; the compensation cap is $350,000; and ages 60–63 get a special $11,250 catch-up on top of the usual 50+ catch-up. These numbers form the scaffolding that enables owner-operators to push into six-figure deductions (details and sources are provided at the end).
What a small-business DB plan really is
Most entrepreneur-centric DB plans today are cash balance plans. They show each participant a notional “account” that earns pay credits and interest credits, but legally, they’re pensions. Investment risk sits with the employer, not the employee—so you hire an enrolled actuary, file Form 5500 with Schedule SB, and fund to a target each year. For many professional firms (medical, dental, engineering, agency, consulting), a paired 401(k) + cash balance design is the modern standard.
Plain English: you’re exchanging some flexibility for bigger, earlier deductions and a disciplined path to a real retirement number.