Published by AE Tax Advisors Team • 2026-06-20

Solo 401(k) Plus Cash Balance Plan Shelters $250,000 Per Year

The Client

Richard Okafor, a 56-year-old independent management consultant in New York City, earned $680,000 per year in net self-employment income. He had no employees and operated as a single-member LLC with S-Corp election. His federal and state tax burden exceeded $250,000 annually.

The Problem

Richard was contributing the maximum to his Solo 401(k) -- $30,500 in employee deferrals plus 25% employer profit-sharing -- totaling approximately $76,500 per year. While significant, this sheltered less than 12% of his income. He needed a much larger tax-deductible savings vehicle to reduce his $250,000+ annual tax burden.

Our Strategy

We added a cash balance defined benefit plan layered on top of the existing Solo 401(k). The cash balance plan allowed annual contributions of $175,000 based on Richard's age and income. Combined with the Solo 401(k) employee deferrals ($30,500) and employer profit-sharing ($45,000), total deductible retirement contributions reached $250,500 per year. We engaged an actuary to design the plan and ensure IRS compliance.

The Results

The $250,000 in deductible contributions reduced Richard's taxable income from $680,000 to $430,000, saving approximately $92,500 per year in combined federal and New York state taxes. Over the next 10 years before his planned retirement, the dual plan will shelter $2.5 million from current taxation.

Key Takeaway

Self-employed professionals with no employees are ideal candidates for the Solo 401(k) plus cash balance plan combination. The dual structure can shelter $200,000-$350,000+ per year depending on age and income, far exceeding any single plan's limits.