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As a CPA, you are often the first advisor to spot when a client’s retirement plan is leaving money on the table. The good news for 2026: the contribution limits are generous, and the right plan design can stack multiple layers of tax-deductible savings — especially for owner-clients of closely held businesses and professional practices.
Here is a practical roadmap, starting with the core numbers and working up to the most powerful strategy of all: pairing a 401(k) with a cash balance defined benefit plan.
The elective deferral limit is $24,500. The standard age 50+ catch-up is $8,000. For participants who attain age 60, 61, 62, or 63 during 2026, the enhanced catch-up climbs to $11,250 — notably larger than the standard amount and worth flagging for any owner-client in that age window. The Section 415(c) annual additions limit for defined contribution plans is $72,000, with catch-up contributions on top of that. The compensation cap used for most plan calculations is $360,000, and the Section 415(b) annual benefit limit for defined benefit plans is $290,000.
Without a safe harbor, a 401(k) plan must pass the Actual Deferral Percentage (ADP) test, which can limit how much owners and other highly compensated employees are permitted to contribute — because their deferrals are mathematically tethered to what rank-and-file employees choose to defer.
A properly designed safe harbor 401(k) plan satisfies the ADP test automatically, freeing owners to defer up to the full 2026 limit regardless of what other employees contribute. Once the safe harbor structure is in place, the employer can typically layer profit-sharing contributions on top, pushing total annual additions toward the $72,000 Section 415(c) ceiling — plus applicable catch-up amounts.
To illustrate: consider a 62-year-old owner with W-2 compensation of $420,000. Because the 2026 compensation cap is $360,000, only that amount is taken into account for most plan calculations. The owner can defer $24,500, add the $11,250 enhanced catch-up, and then receive employer safe harbor and nonelective contributions until annual additions reach $72,000. Add the catch-up on top, and the total potential 2026 defined contribution funding reaches $83,250 — assuming the plan design and compensation structure support the full amount.
For clients who have already maximized their 401(k) and are still looking for a larger current-year deduction, a cash balance plan is often the next conversation to have.
A cash balance plan is a type of defined benefit plan that expresses each participant’s benefit as a hypothetical account, credited with pay credits and interest credits each year. Funding, however, is governed by defined benefit rules rather than the fixed defined contribution ceiling — which means employers can often contribute and deduct significantly more each year than a defined contribution plan alone would allow.
The combination of a safe harbor 401(k) and a cash balance plan is particularly attractive for older business owners looking to accelerate retirement savings, professional practices such as law firms and medical groups, and closely held businesses with strong, consistent cash flow.
One important caveat: deduction limits and plan testing rules still apply, and the optimal contribution amount will vary based on each client’s age, compensation, workforce demographics, and actuarial assumptions. Modeling the plan design before implementation is essential.
The layering approach — maximize elective deferrals, apply the appropriate catch-up, build to the Section 415(c) ceiling with nonelective contributions, then evaluate a cash balance plan for additional deductions — is a disciplined framework for capturing everything the 2026 rules make available.
The key is starting the conversation early. Safe harbor design changes and the actuarial work required for defined benefit plans must be implemented on a timely basis. Getting ahead of the calendar positions your clients to take full advantage.
Questions about plan design, contribution modeling, or cash balance feasibility? PlanPerfect Retirement specializes in corporate retirement plans and is available to partner with you on behalf of your clients. Visit planperfectretirement.com or call 949-223-8397.
By Jesse St. Cyr, Partner, Poyner Spruill LLP — Employee Benefits & Executive Compensation
