How Age Sets the Cash Balance Plan Contribution

A 401(k) has a dollar limit that is the same for everyone. A cash balance plan does not. It is a defined benefit pension that keeps its records as individual accounts, and the law limits the pension it can pay rather than the amount that goes in. The largest annual contribution is whatever it takes to fund that maximum pension by the plan’s retirement age, which is why the figure for a business owner at 55 can be several times the figure at 40.

The cash balance plan calculator estimates that maximum from the statutory limits. Its defaults describe an owner aged 55 with $450,000 of compensation, a 5% interest credit rate, a 401(k) alongside the plan, $80,000 of staff payroll with a 5% staff contribution, and combined federal and state tax rates of 37% and 10.9%.

The limit behind the number

For 2026 the annual pension a defined benefit plan can pay is capped at $290,000 under IRC §415(b), or 100% of the owner’s average compensation if that is lower. Compensation counts only up to $360,000. The pension cap is reduced for anyone with fewer than ten years in the plan by the time benefits start: one-tenth of the cap for each year of participation. The calculator assumes participation begins now and benefits start at 62.

The steps from there are mechanical. The capped pension at 62 is converted into a lump sum, here using the IRS single life expectancy at 62 and the plan’s interest rate. The annual credit is the level amount that, growing at that rate, reaches the lump sum by 62. Fewer years to 62 means fewer, larger credits, until the ten-year phase-in starts cutting the pension itself.

The maximum by age

From 40 to 55 the credit more than triples, because the same lump sum is funded over 7 years instead of 22. After 55 it keeps rising, but slowly. At 55 the owner will have only seven years in the plan by 62, so the pension is limited to 70% of the cap; at 60 it is 20%. The shorter funding period and the shrinking pension nearly offset each other.

The 401(k) column adds the employee deferral: $24,500, plus $8,000 from age 50 and $11,250 at ages 60 to 63. Profit-sharing contributions are left out, because combined deduction limits apply when a business sponsors both kinds of plan.

The interest credit rate cuts both ways

The plan’s interest rate is used both to convert the pension into a lump sum and to grow the credits toward it. A lower rate makes the lump sum larger and the credits grow more slowly, so it raises the maximum contribution.

Moving the rate from 4% to 6% lowers the maximum by 23% at age 55 and by 31% at age 45. Actual plans set this rate, and the rates used to convert benefits to lump sums, under their plan documents and IRS rules; the calculator’s single rate is a simplification.

What the owner pays for staff

A cash balance plan must cover eligible employees and pass nondiscrimination testing, so it usually comes with contributions for staff. At the default 5% of $80,000 of payroll that is $4,000 a year, small next to a credit of $354,242. With more staff, or a plan design that requires larger staff credits, the cost per dollar sheltered rises. Staff cost depends on plan design and testing, which the calculator reduces to a single percentage of payroll.

What the estimate leaves out

• Actuarial assumptions. Real maximums depend on the plan’s mortality table and the IRS rates for converting pensions to lump sums; the calculator’s figure is an estimate.
• Minimum funding. A defined benefit plan requires contributions each year within a range; it is a commitment, not a contribution chosen year to year.
• Deduction limits when the same business also makes 401(k) profit-sharing contributions.
• Retirement before 62, which lowers the pension cap.

The calculator shows the estimate for any age, compensation and interest rate, with the staff cost and the tax saved.

Assumptions

Figures computed on October 3, 2026 with the cash balance plan calculator, using the 2026 limits from IRS Notice 2025-67 as listed on the IRS page “COLA increases for dollar limitations on benefits and contributions”: participation starting now; benefits at 62; the pension cap phased in over ten years of participation; the lump sum at 62 valued over the IRS single life expectancy at 62 (Pub 590-B, Table I) at the plan rate; level annual credits; compensation of $450,000; tax saved at a combined 47.9%. Estimates only; an actuary sets a plan’s actual maximum. Amounts are rounded to the dollar.