A cash balance plan is a type of defined benefit pension plan built to look and feel like a 401(k), with a hypothetical account balance that grows from an annual pay credit and a fixed interest credit. The draw is the contribution ceiling. Because the limit is age-based, an older high earner can shelter well over $200,000 a year, far beyond a 401(k), and stacking the two pushes the total higher still. The trade-off is a multi-year funding commitment, an annual actuary, and a required contribution for any employees. It is the biggest legal tax deferral most profitable owners have never used, and it is not for everyone.
Small business owners have five main retirement plans to choose from: the Solo 401(k), SEP IRA, SIMPLE IRA, traditional or Roth IRA, and Defined Benefit or Cash Balance plans. The right one depends on your income, your business entity, the salary you pay yourself, and whether you have employees. Solopreneurs and high earners usually get the most from a Solo 401(k). Owners with rising income who want to shelter the largest amounts look at adding a Cash Balance plan. The plan you choose sets a ceiling, but how much of that ceiling you can actually reach is a function of how your business and your pay are structured.
A fringe benefit is any form of non-wage compensation an employer provides to an employee. The IRS treats most fringe benefits as taxable wages unless a specific statute makes them tax-free. For C-corp employee-owners, the benefit menu is generous: health insurance, group-term life, education, dependent care, transportation, and HRAs flow through tax-free. For S-corp owners with more than 2% ownership, most of those benefits get added back to W-2 wages and the cafeteria plan is off limits. The entity choice quietly drives the planning math for every fringe benefit you provide yourself.
An accountable plan is an IRS-approved reimbursement policy that lets an S-corp pay its owner-employees back for legitimate business expenses (home office, cell phone, mileage, internet, etc.) tax-free to the owner and fully deductible to the business. Without one, those out-of-pocket expenses became non-deductible after the Tax Cuts and Jobs Act suspended misc itemized deductions. The plan is one of the simplest tax structures to set up: a written policy, monthly expense reports, and a return-of-excess rule. Most S-corp owners never set one up because it's a documentation system, not a return line item, and most tax preparers don't proactively recommend it.
An active trader walked in paying $634,114 in annual tax with zero retirement savings. Four coordinated moves cut his tax bill to $491,440 (saving $142,674 per year) and built $117,250 of annual retirement contributions where there had been none. The moves: Trader Tax Status election with §475(f) mark-to-market, an S-corp structure with salary optimization, formalized spousal employment for retirement contribution stacking, and a Massachusetts PTET election. This is the long-form companion to our published case study.
Hiring family members in your business is one of the cleanest tax strategies the IRC allows. Pay your child up to the standard deduction (16,100 for 2026) and they owe no federal income tax. Pay your spouse and you open Solo 401(k) and benefit contribution room. The strategy works for every entity type, but the mechanics shift, FICA is exempt for kids under 18 only when the business is a sole prop or partnership of both parents. The catch isn't the strategy. It's the documentation.