For a successful physician or dentist who owns a practice, the standard retirement accounts often feel too small. After years of training and a late start to earning, a practice owner in peak years may be saving aggressively and still bumping up against the ceiling of what a 401(k) allows. In 2026, an employee can defer $24,500 into a 401(k), and total contributions to a defined contribution plan, including employer money, are capped at $72,000. For someone earning several hundred thousand dollars a year and facing a combined marginal tax rate well above forty percent, that is rarely enough.
There is another category of plan built for exactly this situation. Defined benefit plans, and their modern cousin the cash balance plan, allow high-earning practice owners to contribute far more, often well into six figures annually, with the contributions generally deductible against current income. For the right practice, layering one of these plans on top of a 401(k) is one of the most powerful tax and retirement tools available.
Here is how they work and when they make sense.
The Limits of Defined Contribution Plans
A 401(k) or profit-sharing plan is a defined contribution plan. You and your employer put money in, the limits are fixed, and your retirement benefit is whatever the account grows to. These plans are flexible and familiar, but the annual ceiling is the constraint. Even with a generous profit-sharing contribution, a practice owner is limited to the $72,000 total for 2026, plus catch-up contributions if age fifty or older.
For a younger associate, that is plenty. For an established owner in their forties, fifties, or sixties trying to build retirement savings in a compressed window of high income, it leaves a great deal of unsheltered earnings exposed to tax every year.
How Defined Benefit and Cash Balance Plans Change the Math
A defined benefit plan works in reverse. Instead of setting the contribution, it sets the target benefit at retirement, and an actuary calculates how much must be contributed each year to fund it. Because the law allows funding toward a substantial retirement benefit, the required contributions can be far larger than any defined contribution limit.
A cash balance plan is a type of defined benefit plan designed to look and feel more like an account. Each participant has a hypothetical balance that grows by an annual pay credit and an interest credit. It offers much of the high contribution capacity of a traditional defined benefit plan while being easier for participants to understand.
The key feature for a practice owner is that the maximum contribution rises with age. The closer you are to retirement, the more must be set aside each year to fund the targeted benefit in time. For an owner in their fifties, annual contributions in the range of one hundred fifty thousand to three hundred thousand dollars or more are common, depending on age and income. Those contributions are generally deductible, which is where the tax savings come from.
The Power of Stacking Plans
These plans are most effective when combined. A typical structure for a practice owner layers three pieces:
- A 401(k) capturing the employee deferral.
- A profit-sharing contribution on top of the 401(k).
- A cash balance plan layered above both, absorbing the largest share of the contributions.
Together, this stack can shelter a very large amount of income in a single year, often several times what a 401(k) alone permits. For a practice owner in peak earning years who is behind on retirement savings, this is a way to catch up quickly and reduce a substantial tax bill at the same time.
What to Weigh Before Setting One Up
These plans are powerful, but they are not casual. A few realities deserve attention.
- Contributions are not fully discretionary. A defined benefit plan creates a funding obligation. Unlike a profit-sharing contribution you can dial up or down each year, the actuarial funding target must generally be met, which means the plan suits practices with stable, predictable profits more than those with volatile income.
- Employees must be covered. If your practice has staff, nondiscrimination rules generally require meaningful contributions on their behalf. For a solo practitioner or an owner with few employees, the owner captures most of the benefit. For a practice with many employees, the cost of covering staff has to be weighed against the owner’s savings.
- There is administrative complexity and cost. These plans require an actuary, annual filings, and ongoing administration. The expense is justified by the tax savings at the right contribution levels, but it is real.
- The money is for retirement. Like other qualified plans, funds are intended for retirement and come with rules on access. These are long-term vehicles, not flexible savings.
- Investments are typically conservative. Because the plan targets a defined benefit, the investment approach is usually measured, so that returns track the plan’s assumptions rather than introducing large swings in the funding requirement.
Who Is the Ideal Candidate
The profile that benefits most is fairly specific: a practice owner with strong and consistent income, who is maximizing their 401(k) and still wants to save more, who is often in their forties or older, and who either has no employees or a small, manageable staff. For that person, a cash balance plan can shelter an amount of income that no other qualified structure comes close to matching.
A high-earning dentist or physician who has been told the 401(k) is the end of the road is often leaving one of the largest available tax deductions on the table.
A Long-Term Perspective
Practice owners spend years building a business that generates substantial income, and the peak earning window is often shorter than they expect. Using that window efficiently, both to build retirement security and to manage the tax bill along the way, is one of the highest-value decisions an owner can make. Defined benefit and cash balance plans are not right for everyone, but for the practice with the right profile, they can change the trajectory of retirement savings in just a handful of years.
The objective is to convert strong current income into lasting wealth as efficiently as the tax code allows, rather than surrendering a large share of it to taxes year after year.
At Carrara, we help physicians and dentists evaluate whether a defined benefit or cash balance plan fits their practice, and we coordinate the design with actuaries and tax professionals so the structure is built correctly from the start.
This article is provided for educational purposes only and does not constitute tax, legal, or investment advice. Contribution limits and plan rules depend on individual circumstances and change over time. Please consult qualified tax, actuarial, and financial professionals regarding your specific situation.