Thinking About a Defined Benefit Plan?
Solo 401(k) Rules High Earners Must Know

If you’re a high-income solopreneur earning well into the six figures, you’ve likely already discovered the power of a Solo 401k. But have you considered layering a Defined Benefit Plan on top of it? Combining these two retirement vehicles can unlock annual contributions exceeding $150,000 or even $200,000, dramatically reducing your taxable income while supercharging your retirement savings.

However, before you take the leap, there are critical IRS rules and compliance considerations you need to understand. Getting them wrong can limit your contributions or trigger unexpected filing requirements. In this post, we break down everything a high earner needs to know about adding a Defined Benefit Plan along with a Solo 401k.

Why High-Income Solopreneurs Combine a Defined Benefit Plan with a Solo 401k

The core advantage is simple: you can contribute significantly more to retirement, pre-tax, each year. A Solo 401k already offers the highest contribution limits of any defined contribution plan available to self-employed individuals. When you add a Defined Benefit Plan (sometimes referred to as a DBP), you open the door to even greater savings potential.

Combined Contribution Potential

By combining a Solo 401k and a Defined Benefit Plan, some solopreneurs are able to shelter over $200,000 per year in tax-advantaged retirement accounts. This is especially impactful for high earners looking to drastically reduce their current taxable income while building significant retirement wealth.

Understanding the Three Solo 401k Contribution Buckets

The Solo 401k offers uniquely high contribution limits because it allows three distinct types of contributions. Each bucket operates independently, and understanding how they interact with a Defined Benefit Plan is essential.

As the table above shows, adding a Defined Benefit Plan does not affect your ability to make employee elective deferrals or voluntary after-tax contributions. You can still fully maximize both of those buckets. The only bucket that requires adjustment is the employer profit-sharing contribution.

The Critical 6% Employer Contribution Rule

Here’s the most important rule to remember: if you want to preserve your ability to maximize Defined Benefit Plan contributions, you must limit your employer profit-sharing contributions to the Solo 401k to no more than 6% of your self-employment compensation.

How the Interaction Works

Adding a Defined Benefit Plan does not reduce your ability to contribute to the Solo 401k. However, the reverse is true: if your employer contributions to the Solo 401k exceed 6% of your self-employment compensation, that can reduce the amount you’re able to contribute to the Defined Benefit Plan. Think of it as a one-way street — the DBP doesn’t restrict the Solo 401k, but excess Solo 401k employer contributions can restrict the DBP.

Have Your Cake and Eat It Too: Pre-Tax and Roth Benefits Combined

One of the most powerful aspects of this strategy is that solopreneurs can simultaneously take advantage of both pre-tax and Roth/post-tax benefits:

Maximize pre-tax contributions through the Defined Benefit Plan to reduce current taxable income. At the same time, maximize Mega Backdoor Roth contributions through voluntary after-tax Solo 401k contributions that are converted to a Roth Solo 401k for potential tax-free growth.

The Form 5500-EZ Filing Threshold: A Critical Compliance Requirement

The second critical consideration for solopreneurs adding a Defined Benefit Plan to their Solo 401k involves the Form 5500-EZ filing requirement.

When Is a Form 5500-EZ Required?

A Form 5500-EZ is an informational tax filing required once the value of a Solo 401k plan exceeds $250,000 as of December 31st. It must be filed by the following July 31st.

What Counts Toward the $250,000 Threshold?

When calculating the total plan value, you must include all assets and accounts within the Solo 401k, plus the value of the Defined Benefit Plan:

How My Solo 401k Financial Helps with Form 5500-EZ Filing

At My Solo 401k Financial, we make the Form 5500-EZ filing process easy. If you or your advisor notifies us once your combined plan values exceed $250,000, we will:

Guide you through the entire filing process. We prepare the Form 5500-EZ in the EFAST electronic filing system, making it simple for both clients and their advisors. And we do this at no additional charge as part of our service.

Key Takeaways for High-Income Solopreneurs