In brief
Defined contribution plans (401(k), SEP, profit sharing) cap contributions at IRS limits per participant. Defined benefit plans (including Cash Balance Plans) use actuarial formulas that can allow much larger tax-deductible employer contributions for eligible owners - often combined with a 401(k) rather than used alone.
Defined contribution overview
401(k)s and SEP IRAs offer flexibility and simpler administration. They fit early-stage businesses and variable income but may not maximize deductions for high-earning owners.
Defined benefit overview
Cash Balance Plans commit the employer to fund actuarially determined benefits. They require actuaries, annual funding, and longer-term commitment - but can transform tax and retirement outcomes for the right business.
Choosing a path
Many owners start with a 401(k) and add a Cash Balance Plan when income stabilizes. Montreux and your CPA can map the progression that fits your business lifecycle.
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This article is for educational purposes only and does not constitute tax, legal, or investment advice. Individual circumstances vary. Montreux Wealth Management is a registered investment adviser. Contact f.hasan@montreuxwealth.com with questions.