How much can I contribute to a defined benefit plan?

Depends on age and income. Age 40-44: $100K-$150K. Age 45-49: $130K-$200K. Age 50-54: $180K-$260K. Age 55-59: $220K-$310K. Age 60+: $250K-$350K+. Set by actuary; mandatory once adopted.

Can I have a 401(k) and DB plan at the same time?

Yes. A stacked/combo plan is the most powerful setup. Max the 401(k) ($23.5K employee + employer to $70K total), then add $150K-$300K+ via the DB plan. Total deductible contributions can exceed $300K/year.

Do I have to cover employees?

Yes. Eligible employees must receive a benefit. But employee costs are typically a fraction of the owner's contribution. For contractors with small crews, employee costs of $15K-$30K/year are dwarfed by the owner's $200K+ deduction.

Defined Benefit Plans for Contractors: Shelter Six Figures Legally

You're a 52-year-old HVAC contractor netting $500K. Your CPA says "max out your 401(k)" — that's $31,000. Nice, but at 40% it saves $12,400. You're still paying over $180,000 in taxes. A defined benefit plan fills the gap.

At age 52 with $500K income, you could contribute $200,000–$250,000/year — fully deductible. Stack it with the 401(k) and you're sheltering $230,000+ annually. At 40%, that's $92,000 in annual tax savings.

How DB Plans Work

A DB plan promises a specific benefit at retirement. An actuary calculates the required annual contribution. The contribution is mandatory and fully deductible. The older you are, the larger the contribution — fewer years to grow the money.

Typical ranges by age: 40–44: $100K–$150K. 45–49: $130K–$200K. 50–54: $180K–$260K. 55–59: $220K–$310K. 60+: $250K–$350K+.

Cash Balance vs. Traditional DB

Most small business DB plans are cash balance plans — promising an account balance rather than a monthly pension. Easier to understand, portable (rolls to IRA), familiar to employees. Same tax treatment as traditional DB.

The Stacked Plan: 401(k) + DB

Age 52, $500K net income:

401(k) employee deferral: $31,000
401(k) employer profit sharing: ~$39,000
Cash balance DB contribution: ~$200,000
Total deductible: ~$270,000

At 40%: $108,000 in tax savings in a single year. Effective rate drops from 37%+ to under 24%.

Who This Fits

Good fit: Age 45+, consistent income $300K+ for 3–5 years, small crew relative to revenue, plan to maintain 3+ years.

Poor fit: Volatile income (mandatory contributions in down years), large workforce (employee costs), under 40 (smaller limits), selling within 2 years.

Contractors often fit perfectly: owner 45–60, strong income, small crew (5–20 employees).

Employee Costs

For a contractor with 8 employees at $50K–$80K, total employee cost is typically $15,000–$30,000/year. Compare to the owner's $200K+ deduction. You're spending $25K to save $80K+ in taxes.

Administration

Annual actuarial valuations, Form 5500, nondiscrimination testing. Costs: $3,000–$8,000/year. Setup: $3,000–$5,000. All deductible. Compared to the savings — rounding error.

The Bottom Line

If you're a trade contractor over 45, earning $300K+ consistently, with a small team — this is the single highest-impact retirement and tax strategy available. I've seen it save contractors $500,000–$1,000,000 in taxes over a decade.

This is a CFO-level decision involving plan design, investment selection, and employee coverage modeling. It's what separates a $3M contractor from a $3M contractor who actually keeps the money. Read the full tax strategy guide to see how this fits with everything else.