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As a CPA, you are often the first advisor to spot when a client’s retirement plan is underperforming. For some owner-clients, there is opportunity in making the full elective deferral under a 401(k) plan, using a safe harbor design to reduce testing limitations, filling the remaining defined contribution limit with nonelective contributions, and finally evaluating whether a cash balance plan can unlock much larger deductible contributions.
The core 2026 limits give you the framework
The key thresholds for 2026:
A properly designed safe harbor 401(k) plan can satisfy the usual ADP testing requirements and, where applicable, the ACP testing requirements. This can make it far easier for owners and other highly compensated employees to defer up to the full 2026 limit without depending on rank-and-file deferral behavior. Once the safe harbor structure is in place, the employer can usually use profit-sharing contributions to bring total defined contribution funding up toward the Section 415(c) ceiling.
Example: Consider a 62-year-old owner with compensation of $420,000. Only $360,000 can generally be taken into account for most contribution calculations in 2026. The owner can defer $24,500, add $11,250 in enhanced catch-up, and receive employer safe harbor and nonelective contributions until annual additions equal $72,000, plus the catch-up. In practical terms, that means a 2026 defined contribution total of $83,250, assuming the plan design and compensation structure support the full amount.
For clients who still want a larger current deduction after maximizing 401(k) contributions, the next question is usually whether a cash balance plan is a good fit. A cash balance plan expresses benefits with a hypothetical account to which pay credits and interest credits are added, but funding is governed by defined benefit rules rather than the fixed defined contribution limit.
Employers can often contribute and deduct more each year under a defined benefit plan than under a defined contribution plan, subject to applicable deduction limits. That can make sponsoring 401(k) and cash balance plans attractive, especially for older owners, professional practices, and closely held businesses with strong, consistent cash flow.
Important: Deduction limits sometimes apply. It is important to model potential plan designs using the client’s circumstances before implementing changes.
