Retirement Plan Guide: Solo 401(k) & Cash Balance Plans

One of the most valuable tax-saving strategies available to many independent physicians is maximizing tax-deferred retirement contributions. We offer both Solo 401(k) plans and Defined Benefit Cash Balance Plans to help eligible clients reduce current-year taxes while building retirement savings. 1099 Tax Doctor retirement plans are done “in-house” by our affiliated fiduciary, SEC-registered brokerage and TPA and are incorporated into our tax program and tax planning - you don’t need to go obtain a plan somewhere else and coordinate things between multiple companies.

Defined Benefit Cash Balance Plans

Defined Benefit (Cash Balance) Plans allow retirement contributions well beyond the annual limits of a Solo 401(k). For many high-income 1099 physicians, they can create hundreds of thousands of dollars in additional tax-deferred retirement contributions each year. DB plans are pension plans, which companies traditionally used to provide an annuity at retirement for employees. Modern defined benefit plans allow a Cash Balance plan option, where funds in the plan become fully available and are rolled over into an IRA when the plan is terminated. Practically, cash balance plans function just like a SEP-IRA or solo 401k, just with a higher limit. They are very attractive for physicians who are earning $500k+ of 1099 as a means of sheltering large sums of earnings that otherwise would be subject to 40+% tax rates.

If you use a cash balance plan through 1099 Tax Doctor, our third party administrator provides plan documents and actuary calculations that determine contribution levels. Your plan will have a funding range between a minimum level of (routinely around $30k-$50k per year) and a maximum funding level (routinely > $100k/year). You can choose a contribution level each year within that range. Higher contributions lower your taxable income, thus reducing income taxes.

By regulation, Cash Balance plans are structured around a steady rate of return, usually 5%. Indeed, some cash balance plan providers will simply give you a steady 4-5% rate of return for the plan assets. However, plan funds can be invested for better rates of return. The difference is that they should not be funded overly aggressively, like in individual stocks or all index funds. Rates of return need to remain somewhat stable and gains/losses not deviate too much from the plan baseline. For this reason, unless you are an expert level investor who understands pension plans, you should use a wealth manager to actively manage your plan to obtain better rates of return. All wealth managers will charge fees for this service, with almost no one charging much less than 1% AUM. A major benefit of using our cash balance plans is the option for our fiduciary, SEC-registered wealth manager to manage your plan for a discounted 0.5% AUM. This is who Dr. Wright uses to manage his plan and almost all of our clients use as well.

Cash Balance plans can also be funded alongside solo 401ks for clients who wish to maximize their tax savings and retirement contributions - however the rules are a little different for 401ks if you choose to do this. Typically, the DB plan contribution is done first, and then you are able to contribute a tax-deferred portion to the solo 401k equal to the employer contribution (around $25k) and another employee contribution (usually 6% of S corp salary) for a total of around $40k tax-deferred. The rest of the plan above this limit can actually be funded as a Roth if desired.

Unlike a Solo 401(k), contributions to a Cash Balance Plan are generally not due until your tax return filing deadline (including extensions). For example, contributions for the 2026 tax year may be made as late as September 15, 2027, if your return is extended. This allows you to elect to make a large contribution and pay a much lower income tax at year end but use funds earned the following year to help make the contribution - in fact, many of our clients do exactly this.

Solo 401(k)

Solo 401ks work great for physicians that do not want to contribute more than $72k per year to a retirement plan. Since the only benefit of cash balance plans is their larger contribution limits, clients that earn less than $400k of 1099 often prefer solo 401ks. For S corporations, solo 401ks are preferred over SEP-IRAs are will typically have larger contribution limits due to the way that S corps work.

All 1099 Tax Doctor clients have access to our Solo 401(k). There is no setup fee through our program. If you want to use our plan, our affiliated fiduciary wealth manager charges a 0.50% annual management fee, which includes investment management and preparation of the annual Form 5500 when required. We offer this plan for convenience - clients are free to use any 401k or other retirement plan that they want.

One advantage of our 401k plan is that it is designed to work seamlessly alongside our Cash Balance Plan. Many free prototype plans available through brokerage firms may not be suitable for clients who intend to maximize both types of retirement plans.