PHYSICIAN FINANCE

One Contribution That Fixes Two Problems: How a Cash Balance Plan Pulls a Practice Owner Back Under the QBI Threshold

By Bryan Meyers, Senior Wealth Advisor, ACM Wealth · November 6, 2026

I spend a fair amount of time with practice-owner physicians working through a tension most of them didn't realize they had. They're funding a backdoor Roth, or a mega backdoor Roth, every year because that's what the podcasts and the forums say a high earner should do. At the same time, their taxable income sits right at the top of the Section 199A qualified business income range, where the 20% deduction phases out completely for a specified service trade or business like a medical practice. Nobody ever tells them those two things pull in opposite directions.

Roth contributions are made with after-tax dollars. They don't lower this year's taxable income, which means they don't help you get under the QBI threshold. A pre-tax retirement contribution does both at once, it defers the tax and it lowers the income number the IRS uses to decide whether you keep the deduction. For a lot of practice owners in their 50s and early 60s, the standard 401(k) deferral limit isn't nearly enough to move the needle on its own. That's where a cash balance plan comes in.

What a Cash Balance Plan Actually Does

A cash balance plan is a defined benefit plan dressed up to look and feel like an account balance. Depending on your age and income, an owner nearing retirement can often contribute well over $250,000 a year into it, far beyond what a 401(k) profit-sharing plan allows on its own. I've seen a scenario where a $300,000 cash balance contribution took a roughly $200,000 tax bill down to around $80,000 on $500,000 of practice profit. That's not a rounding error, that's a different year financially.

The part I want practice owners to actually sit with is that this single contribution is doing three jobs at once. It's building real retirement savings on a catch-up schedule that an employee plan alone can't match. It's pulling taxable income down far enough to potentially restore some or all of the QBI deduction you were about to lose. And because it lowers this year's income, it also improves your positioning two years from now when Medicare's IRMAA surcharge looks back at exactly this tax return to set your premium. One contribution, three numbers moving in your favor.

This isn't a set-it-and-forget-it tool. Cash balance plans require actuarial design, they come with funding commitments, and they need to be revisited any year your income or staffing changes materially. But if you're a practice owner in your 50s or 60s who's been defaulting to Roth contributions out of habit while watching your QBI deduction shrink, it's worth modeling what a properly sized cash balance contribution would actually do to this year's return, not just the retirement projection.

This reflects my own analysis and shouldn't be read as the view of ACM Wealth, and isn't a recommendation to buy or sell any security. Tax and retirement plan information provided herein is general in nature and does not constitute tax, legal, or actuarial advice. Cash balance plan design, contribution limits, and QBI thresholds are specific to your practice structure and income and should be confirmed with a qualified tax professional or actuary before implementation. All investing carries risk, including loss of principal. Past performance is no guarantee of future results.