Defined Benefit & Cash Balance Plan Lifetime Limit: What Can You Roll Over?

This article has been updated for 2025.

Introduction

A Defined Benefit Plan allows business owners and high-income professionals to make significantly larger, tax-deductible retirement contributions than other plans.

Even so, certain contribution and asset accumulation limits apply. To estimate the maximum first-year deductible contribution for a Defined Benefit or Cash Balance Plan, try our contribution calculator.

This article is not focused on annual contribution limits. Instead, it explains the maximum amount an owner can roll over from a Defined Benefit or Cash Balance Plan to an IRA or other qualified plan. For clarity, we will refer to this personal rollover limit or asset cap as the Defined Benefit and Cash Balance Plan lifetime limit. Note that the lifetime limit includes not only employer contributions but also investment earnings.

Understanding this lifetime limit is essential for business owners and professionals looking to maximize tax-efficient retirement savings, manage tax exposure, and avoid penalties.

Estimate Your Defined Benefit or Cash Balance Plan Lifetime Limit

Before reading the full article, use the calculator below to estimate your Defined Benefit Plan or Cash Balance Plan lifetime limit.

This tool helps you quickly understand how much you can accumulate in a Defined Benefit Plan on a tax-deferred basis, depending on your age, average compensation, and years of service.

Tip: Many high-income business owners use this calculator to see how increasing compensation or extending plan participation could boost their future payout — while staying under the IRS lifetime cap.

Enter your details below to estimate your Lifetime Limit:

How the Defined Benefit & Cash Balance Plan Lifetime Limit Calculator Works

Inputs

1. Age – Your age at the expected plan payout or termination. Lifetime limits increase with age, reaching nearly $3.6 million at age 62 based on the 2025 limits.
2. Compensation Average – Your average earned income for the highest three consecutive years at the expected payout. The IRS caps eligible compensation at $350,000 for 2025.
3. Years in Business – The projected number of years of business income at plan termination.
4. Years in Plan – The projected number of years you participated in the plan at termination.

Output

• Defined Benefit Lifetime Limit (Lump Sum Value) – The calculator projects your maximum lump sum distribution under Section 415(b) rules. It shows how age, compensation, and service interact to determine the allowable rollover.

Disclaimer:
This calculator is for informational purposes only and is not a substitute for professional advice. Actual limits may vary depending on various factors, including changes in limits, interest rates, mortality tables, and plan provisions. Always consult your Defined Benefit Plan actuary or TPA before making funding and investment decisions.

How the Calculator Inputs Affect Your Lifetime Limit

The lifetime limit calculator estimates your potential Defined Benefit or Cash Balance Plan rollover limitation based on four key factors. Here’s how each input affects the results:

1. Age at Payout

• The lifetime limit generally increases with age because older participants have less time for tax-deferred growth before retirement. However, the limit decreases after age 62 and again after age 68. In addition, if your average compensation is too low, the lifetime limit may decrease with age even before 62 years old.

2. Compensation Average

• Your average plan compensation over the last three consecutive years determines the maximum lifetime limit. Higher compensation generally supports a larger limit, but younger participants require a lower average to maximize their rollover for their age.

3. Years in Business

• This represents the number of years you earned business income, but it generally cannot exceed your plan participation by more than five years. Once you reach 10 years in the business, additional years do not increase the lifetime limit.

4. Years in Plan

• This is the number of years you accrued a benefit in the plan—that is, years you participated in the plan, worked the required hours, and the plan was not frozen. Benefits phase in over 10 years, so after 10 years of participation, additional years do not increase the lifetime limit.

Output: Defined Benefit Lifetime Limit

• The calculator shows the maximum lump-sum benefit you could receive under IRS rules. This figure illustrates the interaction of your age, compensation, and service years, giving a realistic estimate of your Defined Benefit or Cash Balance Plan lifetime limit.

What Is the Lifetime Limit in a Defined Benefit or Cash Balance Plan?

The lifetime limit represents the maximum benefit that can be rolled over from a qualified Defined Benefit or Cash Balance Plan, including both contributions and investment earnings.

It’s based on Section 415(b) of the Internal Revenue Code, which restricts the lifetime annuity a participant can receive from a Defined Benefit Plan.

For 2025, the maximum annual lifetime annuity is $280,000 payable at age 62. This annual payment translates to a one-time lump sum maximum of up to $3.6 million for 2025.

The purpose of these caps is to limit tax deferral for highly paid business owners and employees. Defined Benefit and Cash Balance Plans must observe these limits to remain tax-qualified.

Lifetime Limit Depends on Payout Age

The lifetime limit for a Defined Benefit Plan depends on the participant’s age at payout. The table below shows the maximum lump sum limits for selected ages, assuming the participant will have sufficient average compensation and at least 10 years in both the business and the plan.

Age	Rollover Limit
Age 35	$0.9 million
Age 45	$1.5 million
Age 55	$2.5 million
Age 62	$3.6 million
Age 65	$3.4 million
Age 68	$3.9 million
Age 70	$3.7 million

As the table shows, the limit is reduced for payment before age 62. This reduction accounts for the longer period of tax deferral when payout occurs at a younger age.

For example, upon termination, a participant may roll over their Defined Benefit lump sum to an IRA. By so doing, the tax deferral continues until funds are distributed from the IRA. Obviously, the value of this tax deferral is much higher for a 35-year-old than it is for a 62-year-old. A 35-year-old, for instance, has an additional 27 years of potential tax-deferred growth. The reduction in the lifetime limit for payouts before age 62 reflects this extended deferral period. 

Average Compensation Affects Lifetime Limit

The average compensation over three consecutive years determines the maximum Defined Benefit and Cash Balance Plan lifetime limit. The table below shows the average compensation required at each payout age to maximize the lifetime limit, assuming at least 10 years in both the business and the plan.

Age	Compensation to Maximize
Age 35	$55,000
Age 45	$96,000
Age 55	$176,000
Age 62	$280,000
Age 65	$280,000
Age 68	$350,000
Age 70	$350,000

As the table shows, younger participants require a lower average compensation to reach the maximum lifetime limit for their payout age, while older participants need higher compensation.

Understanding the compensation needed to maximize the lifetime limitation for a given age is important to avoid excess payroll taxes.

Note: These figures are based on current IRS limits. As the IRS indexes these limits for inflation, the compensation amounts needed to maximize the lifetime limit are expected to increase over time.

Defined Benefit Lifetime Limit Is Prorated Service

The lifetime rollover limit for a Defined Benefit and Cash Balance Plan is determined by first calculating two separate interim limits—the dollar limit and the compensation limit. These limits are expressed as annual lifetime annuities, not lump sums. After both limits are determined, the smaller of the two annuity amounts is converted into a lump-sum value to establish the participant’s maximum allowable rollover.

The dollar limit is based on an IRS-published maximum benefit ($280,000 for 2025). This limit is adjusted in two ways:

• By age: If the payout occurs before age 62, the limit is actuarially reduced. If payout occurs after age 65, it is actuarially increased. Between ages 62 and 65, no age adjustment applies.
• By participation service: If the participant has fewer than 10 years in the plan, the age-adjusted dollar limit is prorated based on years of plan participation. For example, with only 4 years in the plan, the participant’s limit would be multiplied by 4/10, or 40% of the full age-adjusted dollar limit.

The compensation limit is determined using the participant’s highest consecutive 3-year average of plan compensation. This limit is then reduced pro rata if the participant has fewer than 10 years in the business. For instance, with 9 years of business service, the compensation limit would be multiplied by 9/10, or 90% of the full limit.

In short, to qualify for the maximum lifetime rollover limit, a participant typically needs at least 10 years of both plan participation and business service. Otherwise, the dollar and compensation limits will be prorated to reflect the participant’s shorter service history.

Interest and Mortality Rates Affect the Rollover Limit

Beyond age, compensation, years in the business, and years in the plan, the interest and mortality assumptions defined in the plan and prescribed by the IRS play a key role in determining the lifetime lump sum rollover limitation.

For instance, when the dollar limit is adjusted for payouts before age 62 or after age 65, the actuary must reflect both the plan’s and the IRS’s actuarial assumptions. The IRS currently specifies an interest rate of 5.00% and the Applicable Mortality Table for this adjustment.

Similarly, when converting the smaller of the dollar limit and compensation limit into a lump sum value, the plan’s actuary calculates the amount using both the plan’s assumptions and the IRS’s assumptions, then uses the smaller of the two results. For this calculation, the IRS prescribes an interest rate of 5.50% along with the Applicable Mortality Table.

So, how do the interest and mortality assumptions affect the lifetime limit? Higher interest rates and mortality rates reduce the lifetime limit. Conversely, lower interest and mortality rates increase the rollover limit.

Your Spouse and a Second Lifetime Limit

If a business owner’s spouse is also an employee of the business, the household can potentially receive two separate lifetime limits, effectively doubling the total rollover potential.

The spouse’s limit is calculated independently but follows the same rules as the owner’s limit, including adjustments for age at payout, average compensation, years in the business, and years of plan participation.

It’s important to note that often spouses do not meet the requirements to immediately participate, or even participate at all, in the Defined Benefit Plan. This can occur if the spouse has not worked the required eligibility hours or was hired after the owner. In such cases, the actuary can amend the plan to temporarily waive the participation requirement as of a specified date. Even then, the plan may need adjustments to ensure that the spouse meets the annual minimum hours requirement, resulting in a benefit accrual and increasing years of service.

401(k) Plans Increase Tax Deduction

Beyond employing a spouse to maximize Defined Benefit deductions, adding a 401(k) Plan alongside a Defined Benefit Plan —commonly called a DB/DC Combo Plan—can further increase retirement plan tax deductions.

For participants aged 50 or older, this allows an additional $31,000 in employee deferrals to the 401(k) Plan, along with a potential profit sharing allocation. Importantly, the profit sharing allocation is reduced when paired with a Defined Benefit or Cash Balance Plan, so these contributions should be carefully coordinated with your Defined Benefit TPA.

If a spouse is employed by the business and has sufficient plan compensation, they too may be eligible for 401(k) contributions, potentially doubling the household deduction, similar to the effect of the Defined Benefit Plan.

Can You Have More Than One Lifetime Limit?

Yes — in certain cases. A second lifetime limit may be possible if you are involved in two separate businesses. Generally, you must be either an employee or hold a minority ownership interest in one or both businesses. This scenario often occurs when a business owner operates a side business in addition to their primary company.

For example, suppose a physician owns 10% of a medical practice. As a partner in the practice, the physician receives a Defined Benefit that is intended to provide the lifetime limit at payout. In addition, the physician also has an unrelated side business, such as public speaking, that generates substantial income.

In this scenario, the physician may be able to adopt a second Defined Benefit Plan for the side business. This second plan could allow additional funding toward a separate lifetime limit. Because the rules governing dual plans are complex, it is essential to consult with your TPA or actuary to confirm whether a second lifetime limit is permissible and to ensure proper plan design.

What Happens If You Exceed the Lifetime Limit?

Plan assets in excess of the lifetime limit cannot be paid to the owner or participant.

One option is to transfer the excess back to the employer, but this triggers a 50% non-deductible excise tax in addition to income tax on the excess assets.

To reduce—or potentially eliminate—these taxes, the excess assets can instead be:

• Used to increase benefits for other plan participants
• Transferred to a Qualified Replacement Plan (QRP)
• Used to purchase an annuity that includes a spousal death benefit

Of course, it is generally easier to proactively manage contributions and investment returns to stay within the lifetime limit than to try to resolve excesses after they occur. Careful planning with your TPA or actuary is essential to minimize consequences.

In Summary

Both Defined Benefit Plans and Cash Balance Plans offer powerful opportunities to accelerate tax-deferred retirement savings.

The lifetime limit, which can reach approximately $3.6 million for 2025, represents the maximum amount of plan assets that can be rolled over.

Understanding how this limit is affected by your age, compensation, years in the business, and years in the plan allows you to strategically maximize retirement savings and minimize taxes while staying compliant.

Moreover, the Lifetime Limit Calculator on this page helps you make informed decisions to maximize your retirement savings potential.