Put business profits toward your retirement.
What could your business contribute?
An enrolled actuary calculates a contribution range for your plan. Review your retirement goals alongside employee costs and the funding your business can sustain.
See if you fitA defined benefit plan may let your business contribute more toward retirement than a defined contribution plan, such as a 401(k). Employer contributions are generally tax-deductible within legal limits. The amount depends on your age, pay and plan.Internal Revenue Service, Defined benefit plan page (opens in a new tab)
Could a pension fit your business?
If your business has profits you can commit to retirement over several years, a defined benefit plan may be worth exploring. You can use the plan to build retirement savings, but you also take on an ongoing funding obligation.
Consider the full cost: contributions for eligible employees, administration and actuarial fees, and funding when business income falls. Your own contribution is only part of the decision.
How much can I put away?
Your contribution depends on the benefit your plan is designed to fund. For 2026, the law caps the annual benefit a plan may pay at $290,000, or 100 percent of the participant’s average pay for the highest 3 years if lower, and counts pay only up to $360,000.
An enrolled actuary, the licensed actuary who must sign the plan’s yearly form, calculates the contribution needed to fund that benefit for your age and pay, so the contribution can be more or less than $290,000.
Effective January 1, 2026, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) of the Code is increased from $280,000 to $290,000.
A yearly benefit limit, not a contribution limit. Read IRS Notice 2025-67 in full (opens in a new tab)
Plan for the ongoing commitment.
The IRS lists the defined benefit plan as the most costly and the most administratively complex type of plan. The contribution is mandatory each year within the actuary’s range, and an unpaid minimum is taxed at 10 percent, then 100 percent.
The employer bears the investment risk: benefits do not depend on asset returns, so a shortfall raises future contributions. The money is locked until age 59½, separation or plan termination, with a 10 percent additional tax on early distributions. Staff must be covered and credited under federal tests. Fees for the actuary, the administrator and the filings are paid every year.
Internal Revenue Service, Defined benefit plan page; 26 U.S.C. 4971(a)(1); 26 U.S.C. 72(t)(1) (opens in a new tab)“Most costly type of plan”
Include administration and actuarial fees when you compare the cost with your retirement goals.
Internal Revenue Service, Defined benefit plan page (opens in a new tab)- 46,233, source: U.S. Department of Labor, Private Pension Plan Bulletin Abstract, 2023 (opens in a new tab)
Defined benefit plans in the Department of Labor’s 2023 Form 5500 data, which leaves out one-participant plans.
- September 15, 2027, source: 26 U.S.C. 430(j)(1) (opens in a new tab)
When the minimum contribution for a calendar 2026 plan year is due, whether or not the tax return is extended.
Who holds my money?
The plan’s money sits in a trust account at a custodian, or with an insurance company as an annuity contract, in the plan’s name. In most small plans the business owner serves as trustee. The trustee signs for the plan’s account and directs its investments.
The trustee is also a fiduciary under federal pension law: the trustee must act solely in the interest of the plan’s participants, must invest prudently, and is personally liable for losses caused by a breach of those duties. No contract can remove that liability.
29 U.S.C. 1103(a), 1104(a)(1), 1109(a), 1110(a) (opens in a new tab)Is this legal?
Defined benefit plans are written into sections 401(a), 411, 412, 415 and 430 of the Internal Revenue Code and regulated by the Department of Labor under ERISA, the federal pension law. The Department of Labor counted 46,233 of them in its 2023 Form 5500 data, which leaves out one-participant plans.
The IRS also names arrangements it treats as abusive. The full answer lists its warning signs and shows how to check a provider and an actuary.
26 U.S.C. 401(a); U.S. Department of Labor, Private Pension Plan Bulletin Abstract, 2023 (opens in a new tab)Every number here comes with its law.
Each page on definedbenefits.com answers one question a business owner asks about a defined benefit, cash balance or 412(e)(3) pension plan. The answer comes first. The statute, regulation or IRS page behind it follows in its own words, so you and your CPA can check every line before anyone signs anything.
Internal Revenue Service, Defined benefit plan page (opens in a new tab)Checked on October 15, 2026.