How to Pair a Defined Benefit Plan with a 401(k) for Maximum Tax Deferral
When most professionals think about retirement plans, they often think in terms of either/or. Either you have a 401(k), or you have a defined benefit plan. Either you contribute to a SEP IRA, or you fund a profit-sharing plan. But in truth, the IRS allows high-income professionals and business owners to stack multiple qualified retirement plans—and when structured properly, the combination of a defined benefit (DB) plan and a 401(k)/profit-sharing plan can create one of the most powerful, tax-efficient retirement strategies available in the United States.
Unfortunately, many advisors and plan providers don’t communicate this. And that means thousands of doctors, dentists, attorneys, and small business owners are leaving serious money—and tax savings—on the table.
This chapter walks you through how these two plans complement each other, how the IRS rules work in practice, what contribution levels you can expect, and how our firm designs these structures to minimize staff cost while maximizing owner benefit.
If you want to capture six-figure tax deductions, build guaranteed retirement income, and still retain the flexibility of a 401(k), you’re in the right place.
The Big Picture: Why Stack Plans?
The main reason to pair a defined benefit plan with a 401(k) is simple: greater total contributions and greater tax deferral.
Each type of plan has its own limits and rules. When you use them together, you can contribute significantly more than with either plan alone.
Let’s look at the 2025 contribution limits:
Defined Contribution Plan (401(k) + Profit Sharing):
Employee Elective Deferral: $23,000
Catch-Up (if age 50+): $7,500
Employer Profit-Sharing: up to 25% of W-2 wages (max total = $69,000 for those under 50; $76,500 for those 50+)
Defined Benefit Plan:
Contributions based on actuarial calculations to fund a future benefit
Typical max benefit: $275,000/year at age 62
Contributions: $100,000–$300,000+/year depending on age, income, and years to retirement
Combined potential contribution (age 55):
DB Plan: $220,000
401(k): $76,500
Total: $296,500/year in tax-deferred contributions
And yes—it’s all legal, deductible, and fully IRS-compliant when structured properly.
The Key: Each Plan Has Separate Limits
The reason this strategy works is because defined contribution and defined benefit plans operate under separate IRS limits.
401(k) plans fall under IRC Section 415(c) (defined contribution limits)
Defined benefit plans fall under IRC Section 415(b) (pension benefit limits)
As long as the combined plan structure meets IRS testing requirements and nondiscrimination rules, you can contribute to both at the same time.
But—and this is critical—the plans must be designed to work together. This is not a DIY project. If you use an off-the-shelf 401(k) and bolt on a DB plan without integrated testing, you could violate compliance rules and lose tax benefits.
That’s where our firm comes in.
How We Structure a Combo Plan
We start by assessing your current 401(k) and profit-sharing plan. In many cases, professionals already have a plan in place. That’s great—often we can enhance or amend your existing plan rather than rebuild it.
Here’s how we approach it:
1. Safe Harbor 401(k) Base
We usually start with a Safe Harbor 401(k) design. This automatically satisfies certain IRS nondiscrimination testing by making modest contributions to employees.
3% of pay to all eligible staff, OR
Matching 100% of the first 3% of employee contributions, plus 50% of the next 2%
This safe harbor feature allows you, as the owner, to max out your 401(k) deferrals without worrying about failing ADP/ACP testing due to lower employee participation.
2. Integrated Profit-Sharing
We then add a profit-sharing plan, usually with a new comparability formula, to allocate more of the employer contribution to owners and highly compensated employees (HCEs).
This allows total contributions to hit the $69,000 or $76,500 max (depending on age).
3. Add the Defined Benefit Plan
Once the 401(k) is optimized, we layer on the defined benefit plan. This is custom-designed based on:
Your age
Your income
Years to retirement
Targeted retirement benefit
Our actuaries run all required testing (including combined plan limits, top-heavy rules, and coverage testing) to ensure total compliance.
Case Study: Dr. Walker, Age 54
Scenario: Dr. Walker is a successful oral surgeon earning $480,000/year. She already has a Safe Harbor 401(k) and profit-sharing plan, contributing the maximum $76,500. Her CPA refers her to us for a DB plan consultation.
We analyze her current setup and determine that she could add a defined benefit plan with an annual contribution of $190,000.
Combined annual deferral:
DB Plan: $190,000
401(k) + Profit Sharing: $76,500
Total: $266,500/year
Estimated tax savings: ~$110,000/year
15-year total contributions: $4 million+
Estimated plan value at retirement (age 69): ~$6 million tax-deferred
We also design a modest 5% benefit for her two staff members to meet IRS minimum coverage, adding about $8,000 to her annual contributions—still fully deductible.
Employee Impact: Keep It Efficient
A common concern from business owners is, “Won’t I have to contribute a lot for my employees too?”
The answer is: only as much as needed to pass IRS compliance rules—and often, it’s very modest.
We use techniques like:
Safe Harbor 401(k) match (to satisfy discrimination rules)
Minimum benefit accruals in DB plan (e.g., 3–5% of pay)
Exclusion of part-time or short-tenure employees (within IRS limits)
Targeted vesting schedules (e.g., 3-year cliff or 6-year graded)
For many small firms, employee costs are just 5–10% of total payroll, and still count as business deductions.
Tax Efficiency: The Real Power of the Combo
The financial benefit of stacking a DB plan with a 401(k) isn’t just about growing assets—it’s about strategic tax deferral.
Let’s break it down:
Without Combo Plan:
Max deferral: $69,000
Effective tax rate: 40%
Tax paid on remaining $411,000: ~$164,000
Retirement assets in 15 years (6% growth): ~$1.5 million
With DB + 401(k) Combo:
Total deferral: $266,500
Tax saved annually: ~$106,600
Retirement assets in 15 years: ~$5 million
Long-term tax deferral + income smoothing upon distribution
You not only save more—you keep more.
Common Pitfalls When Plans Aren’t Integrated
If your plans aren’t coordinated, you risk:
Failing nondiscrimination testing
Overfunding the DB plan without adjusting 401(k)
Creating excessive employee costs
Losing deductibility due to testing violations
That’s why we handle:
Combined plan design
Actuarial testing and calculations
Employee notices and compliance filings
IRS Form 5500 for each plan
Investment management across both accounts
You focus on your practice. We focus on the pension math.
Your Exit Strategy: Rolling Both Plans Into Retirement
When it’s time to retire, the combo plan pays off again.
You can roll the DB plan and 401(k) into one IRA, combining them into a single tax-deferred account.
If you want guaranteed income, you can annuitize either account.
If you sell your practice, the plans can be terminated and funds distributed in a tax-efficient way.
We coordinate the termination, rollover, or conversion strategy so you retain control, tax efficiency, and flexibility at every stage.
Who Is This Best For?
This strategy works best for: ✅ Business owners earning $250k–$1M+
✅ Professionals with stable cash flow
✅ Solo or small-group practices with manageable staff
✅ Individuals age 40+ who want to catch up
✅ Firms with an existing 401(k) that want to add more
It’s especially valuable for doctors, lawyers, dentists, consultants, and family-run firms looking to shelter more income without reinventing the wheel.
Getting Started: Our Design Process
We offer a complimentary combo plan consultation, where we:
Review your current 401(k)/profit sharing setup
Model a defined benefit plan contribution range
Run a combined IRS testing simulation
Estimate your total annual tax savings
There’s no commitment. Just clarity.
If the plan makes sense, we’ll handle the rest—design, setup, compliance, filings, and investment management—under one roof.
Summary: More Than the Sum of Its Parts
Separately, a 401(k) and a defined benefit plan are strong tools. But together, they unlock a new level of retirement planning power.
By stacking the plans:
You dramatically increase your pre-tax contributions
You lower your business and personal tax burden
You build both flexibility (401(k)) and guaranteed income (DB)
You future-proof your exit strategy
In the world of retirement planning for professionals, this is as close to a cheat code as it gets—and it’s available to you right now.