A cash balance plan can be one of the most powerful retirement tools available to business owners, but understanding how much you can actually contribute is not always straightforward.
One of the most important concepts to understand is how the IRS coordinates contributions between a cash balance plan and a 401(k) profit-sharing plan. When these plans are combined, contribution limits are governed by rules like the 6% rule and the 31% rule.
This article—and the accompanying tables—provide a simplified way to visualize how these limits work in practice. By laying out estimated contribution ranges by age and showing how different components interact, you can better understand what is possible.
Background
A common retirement strategy involves pairing a 401(k) profit-sharing plan with a cash balance plan. When these two plans are used in tandem, the IRS may restrict or cap the total contributions allowed.
Fortunately, the IRS permits combining a cash balance plan with a 401(k) profit-sharing plan, though there are certain restrictions on how much can be contributed.
For contributions to the cash balance and profit-sharing components, the IRS sets forth two distinct maximums: the 6% rule and the 31% rule.
What is the 6% limit?
According to the IRS, if either the profit-sharing or cash balance plan contribution does not exceed 6% of the deemed compensation, there are no further restrictions on contributions to the other plan (aside from each plan’s individual maximum).
In other words, keeping the profit-sharing contribution at 6% of deemed salary allows the cash balance plan to be funded up to its actuarial limit. The reverse is also true: if the cash balance contribution is 6%, profit-sharing may be increased up to the plan’s annual maximum.
What is the 31% rule?
Under the 31% rule, total contributions from both the cash balance and 401(k) profit-sharing plans must not go beyond 31% of deemed compensation. The individual amounts can be allocated in any proportion, as long as the combined total remains under this threshold.
To stay in line with IRS requirements, you must satisfy either the 6% rule or the 31% rule—meeting just one is sufficient for the plan combination to be considered compliant (though other tests may still apply).
When followed correctly, these rules can greatly enhance tax-deferred retirement savings, particularly for self-employed professionals under 40 with many years to build their investment portfolios.
2026 Calculation
The 31% rule is calculated using a maximum compensation of $360,000. The amount is then $111,600. This would be $47,500 for the 401(k) profit-sharing and $64,100 for the defined benefit plan.
2026 Table
| Age | 31% Rule | 6% Rule | Variance | ||
|---|---|---|---|---|---|
| 31% Calc | DB Contr. | 401(k) PS 6% | 6% Total | ||
| 30 | $111,600 | $73,300 | $21,600 | $94,900 | $16,700 |
| 31 | $111,600 | $77,000 | $21,600 | $98,600 | $13,000 |
| 32 | $111,600 | $80,900 | $21,600 | $102,500 | $9,100 |
| 33 | $111,600 | $85,000 | $21,600 | $106,600 | $5,000 |
| 34 | $111,600 | $89,300 | $21,600 | $110,900 | $700 |
| 35 | $111,600 | $93,800 | $21,600 | $115,400 | ($3,800) |
| 36 | $111,600 | $98,600 | $21,600 | $120,200 | ($8,600) |
| 37 | $111,600 | $103,600 | $21,600 | $125,200 | ($13,600) |
| 38 | $111,600 | $108,800 | $21,600 | $130,400 | ($18,800) |
| 39 | $111,600 | $114,400 | $21,600 | $136,000 | ($24,400) |
2025 Calculation
The 31% rule is calculated for 2025 using a maximum compensation of $350,000. The amount is then $108,500. This would be $46,500 for the 401(k) profit-sharing and $62,000 for the defined benefit plan.
2025 Table
| Age | 31% Rule | 6% Rule | Variance | ||
|---|---|---|---|---|---|
| 31% Calc | DB Contr. | 401(k) PS 6% | 6% Total | ||
| 30 | $108,500 | $73,200 | $21,000 | $94,200 | $14,300 |
| 31 | $108,500 | $76,900 | $21,000 | $97,900 | $10,600 |
| 32 | $108,500 | $80,800 | $21,000 | $101,800 | $6,700 |
| 33 | $108,500 | $84,900 | $21,000 | $105,900 | $2,600 |
| 34 | $108,500 | $89,200 | $21,000 | $110,200 | ($1,700) |
| 35 | $108,500 | $93,700 | $21,000 | $114,700 | ($6,200) |
| 36 | $108,500 | $98,400 | $21,000 | $119,400 | ($10,900) |
| 37 | $108,500 | $103,400 | $21,000 | $124,400 | ($15,900) |
| 38 | $108,500 | $108,700 | $21,000 | $129,700 | ($21,200) |
| 39 | $108,500 | $114,200 | $21,000 | $135,200 | ($26,700) |
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