California retirement planning
The biggest deduction you are probably not taking
A profitable California business owner can usually deduct far more than the $24,500 a 401(k) is famous for. This prices the three real options against each other, at California's rates, and shows what each one costs you after tax.
Your numbers
A corporation measures the employer contribution on W-2 salary. A sole proprietor uses net earnings, which makes a nominal 25% an effective 20%.
Net profit before any owner retirement contribution.
Employer contributions are measured on this, so it caps the plan as well as the payroll tax.
Age drives everything here. A cash balance plan funds far more for an owner in their fifties, and catch-up contributions start at 50.
Decides whether a §199A deduction is in play, which changes what the contribution is really worth.
On these numbers
You could deduct roughly $140,920 this year
Through solo 401(k) + cash balance plan, saving $39,708 in federal and California tax. That is 28 cents back on every dollar you set aside, so $140,920 of retirement money costs you $101,212 of spendable cash.
2026 contribution limits from IRS Notice 2025-67 and 2026 federal rates; California personal tax uses the 2025 rate schedules, because the FTB has not published 2026 brackets yet.
Deductible this year
$140,920
Solo 401(k) + cash balance plan
Est. current-year tax reduction
$39,708
$26,603 federal, $13,106 California
Extra room vs a SEP
$95,920
What the simplest option leaves on the table
Deductible room, side by side
Every plan, line by line
| Plan | What goes in | Deductible | Est. current-year tax reduction | Net cost |
|---|---|---|---|---|
| SEP-IRAEmployer money only | Employer contribution (25% of compensation)$45,00025% of W-2 compensation, capped at the $360,000 compensation limit | $45,000 | $12,82529c per $1 | $32,175 |
| Solo 401(k)Deferral plus profit sharing | Elective deferral (§402(g))$24,500Employer profit sharing$45,000Deferral plus profit sharing is capped at $72,000 before catch-up | $69,500 | $20,94830c per $1 | $48,552 |
| Solo 401(k) + cash balance planThe big one - actuarially fundedBestEstimate | Cash balance plan contribution$105,620Estimate: level funding to a 180,000 benefit over 14 yearsElective deferral (§402(g))$24,500Employer profit sharing$10,800Capped at 6% of compensation under §404(a)(7) once a defined benefit plan exists | $140,920range $93,665 to $218,001 | $39,70828c per $1 | $101,212 |
What moves the cash balance range
$93,665 to $218,001 is a preliminary actuarial screening range, not an allowable contribution and not a confidence interval. These are the inputs it is most sensitive to.
- Interest crediting rate, currently 5.0%. A lower rate means the plan has to be funded harder to reach the same benefit.
- Annuity factor, currently 11.5. It moves with the §417(e) segment rates each year and is not something you choose.
- Retirement age, currently 62. A shorter runway concentrates the funding into fewer years.
- Plan design and funding method, which an actuary sets and this tool does not model at all.
- Your compensation history, which caps the benefit under §415(b)(1)(B).
What to know before you commit
- SEP-IRA. A SEP takes employer money only - no deferral and no catch-up - so it is almost always beaten by a solo 401(k) at the same income.
- Solo 401(k) + cash balance plan. This is a preliminary actuarial screening range, not an allowable contribution. An enrolled actuary produces the real figure.
- Solo 401(k) + cash balance plan. The band shown reflects the three assumptions that move it most - crediting rate, annuity factor and retirement age. It is not a confidence interval.
- Solo 401(k) + cash balance plan. Method: A cash balance contribution is set by an enrolled actuary from the plan document, the benefit formula and the funding method. Ours level-funds toward a 180,000 annual benefit over 14 years at 5.0%.
- Solo 401(k) + cash balance plan. A cash balance plan is a funding commitment, not a yearly choice. You are expected to fund it in bad years as well as good ones, and unwinding it early has costs.
Is a cash balance plan right for you?
The figure above is a ceiling, not a recommendation. A cash balance plan is a multi-year funding commitment, needs an actuary and a plan document, and has to be set up before your year end to count. That conversation is worth having in good time, not in March.
Book a planning callEvery limit verified September 1, 2026 against IRS Notice 2025-67, the Internal Revenue Code, and IRS Publication 560. General information, not tax advice.