How a Business Owner Deducted a $900K Retirement Contribution

This article has been updated for 2026.

How could a business owner deduct a $900K contribution that is used to fund his own retirement? How is such a large contribution possible when SEPs and 401(k) Plans are limited to $72,000 and $80,000, respectively, per year?

The answer lies in combining the power of several individual strategies. Strategies that while powerful in isolation, create a “super-charged” outcome in combination.

In this situation, the owner harnessed the power of a Defined Benefit,  a Profit Sharing Plan, a front-loading contribution strategy, and a “doubling up” of household benefits. Taken together, the result was nothing short of incredible! Using these tools together, the business owner deducted a $900K retirement contribution in one year. What’s more, the entire contribution was used to fund the owner and spouse’s retirement. Too incredible to be true? Read below to find out more. 

Background

Before going further, here is some background.

First, the business owner was having his most profitable year to date. In fact, he expected several million dollars of income, resulting in substantial income tax.

Second, the business owner was in his 60s and about 5 years from his appointed retirement date. Additionally, he wanted to make significant progress in closing his “retirement gap”.

Third, although the future of his business was promising, the owner did not expect it to be as profitable as the current year.

Fourth, the business did not have any employees other than the owner’s spouse.

In summary, the owner wanted to significantly reduce his taxes while funding his own retirement. Moreover, he preferred a contribution pattern that matched the profitability of his business. Specifically, he wanted the largest contribution possible in the current year, given high profitability, and lower contributions in future years. Put another way, he wanted front-loading of his Defined Benefit contributions. 

Close to Retirement Age

As mentioned, the business owner was in his 60s. Given the objective to maximize retirement contributions, this worked in his favor. That’s because, in general, Defined Benefit contribution limits increase with age.

This doesn’t mean younger business owners can’t make large contributions. On the contrary. Even business owners in their 30s can deposit substantial Defined Benefit contributions. But, in general, the level of allowable contributions increases with age.

In this particular situation, the business owner was in his 60s and had a very short horizon. Thus, a substantial contribution was allowed to fund the maximum Defined Benefit. 

Added a 401(k) Plan

In addition to adopting a Defined Benefit Plan, the owner adopted a 401(k) Plan to further increase contributions. Having a 401(k) “combo” Plan allowed him to defer an additional $32,500 in wages. Moreover, as the employer, he allocated a 6% Profit Sharing contribution to himself. He limited the Profit Sharing contribution to 6% of earned income to ensure the combined retirement plan limit was not an issue. 

Defined Benefit Contribution Front-loading

Defined Benefit Plans have a contribution range. The permissible range can be very wide. In fact, at the top end of the range, the owner can fund 150% of the benefit in the first year.

Having a wide contribution range allows for the front-loading of Defined Benefit contributions. Under the current rules, the first year’s contribution can be 50% higher than the contribution in a more uniform pattern. This flexibility allows owners to better match their contributions to cash flow. In this instance, that meant a very high contribution in the first year to take advantage of high profitability in the current year. 

Spouse an Employee

In addition to using the strategies above, the employer deposited a retirement contribution for the owner’s spouse. This allowed the business owner to “double up” on his household deduction.

In this particular situation, due to her age and compensation, the spouse’s contribution was lower than the owner’s amount. However, her retirement contribution was relatively close to the owner’s amount. As a result, the owner nearly doubled his deduction. 

In Summary

Taking these strategies together, the business owner deducted $900K in a single year. All while saving for his own retirement!

As you can see, Defined Benefit Plans are powerful tools. They allow for massive tax-deductible contributions that grow tax-deferred and can be rolled over at retirement. What’s more, assuming no employees, the owner can deposit the entire amount to fund his or her own retirement. Even with employees, the percentage of contributions allocated to the owner can be 80% to 90%+.

In this and many cases, combining multiple strategies results in higher deductions. In this instance, the result was a tax-deductible retirement contribution of $900K!