What CPAs Need to Know About Defined Benefit Plans for High-Income Clients

For CPAs advising high-income self-employed clients, the difference between good tax planning and exceptional tax planning often comes down to one question: are you recommending Defined Benefit plans?

If your clients are consistently earning $300,000 or more — and relying primarily on deductions and 401(k) contributions — they may be overpaying their taxes by six figures annually. And if that conversation isn’t happening in your practice, it’s likely happening (or not happening) somewhere else.

After more than 30 years working alongside CPAs, financial advisors, and self-employed professionals, I’ve seen Defined Benefit plans quietly deliver some of the most significant tax outcomes available to high-income business owners. They are not widely understood, not commonly recommended, and not simple to implement — but for the right client, they represent a genuinely transformative strategic advantage.

This article is a primer for CPAs who want to understand Defined Benefit plans well enough to identify the right clients, start the right conversations, and collaborate effectively with the specialists who implement them.

Why Traditional Strategies Lose Impact at Higher Income Levels

The standard toolkit for self-employed tax planning — business expense deductions, retirement contributions, S-corp elections, QBI deductions — works reasonably well at most income levels. But as net income rises above $300,000, a structural problem emerges: the available tools don’t scale with income.

Consider the Solo 401(k). With a 2024 contribution limit of $69,000 (or $76,500 with catch-up), it provides meaningful tax deferral for a professional earning $200,000. But for a client earning $600,000, that same contribution represents just over 11% of gross income. The gap between what the client earns and what can be sheltered grows dramatically — and every unsheltered dollar above the top threshold is taxed at 37% federally, plus state income taxes.

The QBI deduction, similarly, phases out for certain service professionals above specific income thresholds and does nothing to shelter income from self-employment taxes.

The result: high-income clients who are “doing everything right” by conventional standards are often still paying far more in taxes than necessary. The tools they’re using were not designed for their income level.

What Defined Benefit Plans Actually Do

A Defined Benefit (DB) plan is a qualified retirement plan that funds a specific promised benefit at retirement — typically a monthly income for life. Unlike defined contribution plans, where the contribution is the known variable and the retirement outcome is uncertain, a DB plan works in reverse: the desired retirement benefit is defined first, and contributions are calculated to fund it.

That actuarially-determined contribution is also a fully deductible business expense.

Because the IRS allows DB plans to target benefits of up to $275,000 per year in retirement (indexed for inflation), the annual deductible contributions can be substantial — often $100,000 to $300,000 per year, depending on the client’s age, income, and retirement timeline.

For a CPA with clients in this income range, this is the most powerful deduction mechanism available. Nothing else comes close on a per-dollar basis.

The Math That Changes the Conversation

To understand why Defined Benefit plans matter for your high-income clients, consider a concrete example.

Client profile: Solo attorney, age 54, net Schedule C income of $550,000. Currently maximizes Solo 401(k) at $76,500 (with catch-up). Combined federal and state effective tax rate: 40%.

Over five years — assuming consistent income and a conservative 6% return on the DB plan assets — this client accumulates an additional $1.1 million in tax-deferred assets and saves approximately $400,000 in total taxes.

As the CPA on this engagement, your ability to identify this opportunity and facilitate its implementation is what separates you from a preparer and establishes you as a trusted advisor.

Identifying the Right Clients for This Conversation

Not every client is a good fit for a Defined Benefit plan. Part of the value you provide as a CPA is knowing which clients to bring this conversation to — and which ones to steer in a different direction.

Strong candidates typically share these characteristics:

• Consistent net income above $300,000. Clients with stable, predictable income are well-suited; those with highly variable earnings face more planning complexity and risk.
• Self-employed or operating with minimal employees. Coverage and nondiscrimination rules may require funding benefits for staff. Solo practitioners or businesses with a handful of highly-compensated employees are typically the strongest candidates.
• Age 45 and older. Older clients require larger annual contributions to fund the same retirement benefit — which means larger annual deductions. Age is an amplifier, not a disqualifier.
• Already maximizing other retirement vehicles. Clients contributing the maximum to a 401(k) or SEP-IRA and asking “what else can I do?” are precisely who needs this conversation.
• High marginal tax rate. Clients in the 35% or 37% federal bracket — particularly those in high-tax states — derive the greatest benefit from additional large deductions.

Red flags warranting more caution: Clients with highly variable income, those planning to wind down within 2–3 years, and those with a larger number of lower-paid employees who would need plan coverage.

How Defined Benefit Plans Interact With Other Planning Elements

For CPAs, Defined Benefit plans don’t exist in isolation. They intersect with several other planning areas you’re already managing.

Interaction With Solo 401(k) or SEP-IRA

Many high-income clients run a Defined Benefit plan and a Solo 401(k) simultaneously. This combination can be powerful — the 401(k) handles the employee deferral layer, while the DB plan generates an additional large deduction. The combined funding limits need to be carefully managed to maintain plan qualification.

Interaction With S-Corp Elections

For clients operating as S-corps, the DB plan contribution is typically made at the business level and deducted as a business expense, which can also reduce payroll tax exposure. Coordination with the S-corp’s wage structure is essential.

Interaction With QBI Deduction

Because Defined Benefit plan contributions reduce net business income, they can also reduce the QBI deduction. For most clients at these income levels, the direct tax savings from the DB contribution outweigh the lost QBI benefit — but it should be calculated, not assumed.

Interaction With State Taxes

In most states, qualified retirement plan contributions are deductible for state income tax purposes, amplifying the total benefit. A few states have specific rules worth verifying.

The CPA’s Role: Identifier, Communicator, Collaborator

It’s worth being clear about the division of labor here. As a CPA, your role is not necessarily to design and administer the plan — that work belongs to an actuary and a qualified Third Party Administrator (TPA). Your role is threefold:

• Identifier: You often see the complete financial picture of your client’s life — income, tax exposure, business structure, retirement accounts. You are uniquely positioned to recognize when a client’s situation calls for this conversation.
• Communicator: You frame the opportunity in terms your client understands. Not actuarial mechanics, but real numbers: “Here’s what your tax bill looks like with this plan versus without it. Here’s what that difference means for your retirement.”
• Collaborator: You work alongside the actuary, TPA, and financial advisor to ensure the plan is structured correctly, that contributions are funded on time, that the annual Form 5500 filing is coordinated, and that the plan integrates properly with your client’s overall tax picture.

This collaborative model consistently produces the best outcomes for clients. It also deepens client relationships and positions your practice as a hub of high-value advisory services, not just compliance.

Common Misconceptions CPAs Encounter

“My client is too old to start one.”

This is one of the most common misconceptions — and it’s backwards. Older clients often benefit most, because the actuarial calculation requires larger contributions for someone with fewer years until retirement. A 60-year-old with a 5-year runway can sometimes deduct $250,000 or more per year.

“The administration is too burdensome.”

The annual actuarial calculation and Form 5500 filing do add complexity, but the cost — typically $1,500 to $3,000 per year in TPA fees — is modest relative to the tax savings. Once established and running, the annual process is predictable and manageable.

“My client’s income varies too much.”

Variable income is a genuine concern, but not an automatic disqualifier. Plans can be structured conservatively with lower target benefit assumptions that create more flexibility year to year. A hybrid approach combining a conservative DB plan with a 401(k) can manage variability while still generating meaningful deductions in strong years.

“We can start one next year.”

Defined Benefit plans must be established and funded by the tax year for which you want the deduction. For calendar-year taxpayers, that means a December 31 establishment deadline — though contributions can be made up to the tax filing deadline including extensions. If a client is approaching year-end with a large tax liability, this is time-sensitive.

A Framework for Bringing This Into Your Practice

If you’re considering making Defined Benefit plan discussions a more regular part of your high-income client work, here’s a practical framework:

• Step 1 — Screen your client list. Identify clients with net business income consistently above $300,000 who are not currently in a DB plan. Filter for age 45+. These are your priority conversations.
• Step 2 — Model the opportunity. For each priority client, run a rough estimate of the deductions a DB plan could generate. Most actuaries and TPAs will provide a preliminary estimate at no charge.
• Step 3 — Start the conversation early. Don’t wait until tax season. Mid-year conversations give clients time to understand the strategy and make a decision before the December 31 deadline.
• Step 4 — Build your referral network. Identify one or two actuaries and TPAs who specialize in DB plans for small businesses. A strong referral relationship makes the handoff smooth and reflects well on your practice.
• Step 5 — Stay involved. Once the plan is established, stay in the loop on annual contribution amounts, the Form 5500 filing, and how the plan interacts with the client’s tax return. This is where your value as an integrated advisor is most visible.

For the Right Client, This Is a Major Strategic Advantage

Defined Benefit plans are not a universal solution. They require the right client profile, careful implementation, and ongoing coordination. But for self-employed professionals who fit that profile — high income, stable earnings, age 45 or older, minimal employees — they represent one of the most powerful tax and wealth-building strategies available under current law.

For CPAs who serve these clients, understanding Defined Benefit plans well enough to identify the opportunity and facilitate the right conversations is not a niche specialty. It’s a core competency for high-income advisory work.

The clients who need this conversation are already in your book. The question is whether that conversation happens with you or with someone else.

This article is for educational purposes only and does not constitute tax, legal, or financial advice. CPAs should consult with qualified actuarial and retirement plan specialists when evaluating Defined Benefit plans for specific client situations.