An owner at 50 and an owner at 60 are not the same illustration

Today is February 1, 2026. The question under the new limits is no longer what the table says. The table is in force. The question is why two owners who earn the same pay, max the same 401(k), and read the same news release are shown pension deposits that do not look like the same plan. Age is the reason. An owner at 50 and an owner at 60 are funding toward a benefit limit that is written as a retirement annuity. The owner at 60 has fewer years left to fund it. The annual credit is larger. That direction is reliable. A specific dollar amount, in either case, is not something this briefing can certify.

Sterling Pension Group is a third-party administrator. We are not an actuarial firm. An independent Enrolled Actuary certifies the contribution range for an actual plan, for an actual person, for an actual year. Nothing below is that certification. Nothing below is tax, legal, or actuarial advice. The figures used as a comparison are illustrative. They exist so the size of the age gap is visible. They are not a quote, not a deduction, and not a promise that any reader can deposit them.

The limits both owners share

Both owners, in this comparison, are assumed to have compensation at the 2026 cap of $360,000. If either earns less, the comparison stops applying to that person. Plan compensation is W-2 wages for a corporate shareholder and earned income for a partner or sole proprietor. The cap is a ceiling on what the formula may count. It is not a salary recommendation. Both owners are assumed to be in a calendar-year plan using the limits that took effect on January 1, 2026, under IR-2025-111 and Notice 2025-67.

Both can defer $24,500. The owner at 50 can make an ordinary catch-up of $8,000. The owner at 60 can make the higher catch-up of $11,250, because 60, 61, 62, and 63 are the ages that use that figure. The difference on the employee side is $3,250. It is real, and it is small beside the pension gap. The defined contribution annual-additions limit is $72,000 for both, and catch-up sits outside it. Employer profit sharing plus the regular deferral cannot exceed $72,000 for either of them. The IRA limit of $7,500, plus an IRA catch-up of $1,100, is personal and identical in structure. It is not the pension. The IRS COLA page is the table both owners should be looking at. It does not contain a column for age 50 and a column for age 60.

The defined benefit dollar limit is $290,000 for both. The IRS explains it as a limit on the annual benefit, not as a contribution, on the defined benefit limits page. The same annuity cap, reached over a longer remaining work life, requires a smaller annual deposit than the same annuity cap reached over a shorter one. Interest makes the gap wider than a simple division of years, because a credit granted at 50 has more years to be credited with the plan's interest rate before retirement. The actuary is solving that equation. A spreadsheet that divides a lump sum by fifteen and then by five is a classroom sketch. It is not a valuation.

The dollar limit itself is phased in over years of participation. A new plan generally does not provide the full $290,000 benefit in the first year. The comparison in this briefing assumes the phase-in is not the binding constraint — an owner who has already participated long enough that the full dollar limit can apply — so that age, rather than newness, is the thing being compared. A brand-new plan at 60 is not the same case as a ten-year-old plan at 60. A brand-new plan at 50 is not the same case as a mature plan at 50. If you are starting from zero, ask the actuary to show the phase-in. Do not borrow the mature-plan picture because it is the larger number.

An illustrative pair, and the assumptions that hold it up

Take two owners and give them the same facts except age. Each is the only participant. There are no employees. Compensation is $360,000. The plan is a cash balance plan with a fixed interest crediting rate of 5 percent, chosen here only so the sketch has a stated assumption, not because 5 percent is a recommendation or the maximum the market-rate rules allow. The formula is patterned, in a steady way, toward the $290,000 benefit limit at retirement age. The combined-plan deduction limit is ignored. Investment gains and losses are ignored. The phase-in is assumed not to bind. Under that kind of simplified educational comparison, an illustrative annual cash balance credit is often discussed in the neighborhood of $190,000 at age 50 and in the neighborhood of $320,000 at age 60.

Those two numbers are illustrative. They are rounded teaching figures. They are not a Sterling calculation, not an Enrolled Actuary's certification, and not what either owner may deduct. Change the interest crediting rate and both numbers move. Add one eligible employee and both numbers move, usually because the design must spend money on someone other than the owner. Drop compensation to $250,000 and both numbers move down. Start the plan this year so the ten-year phase-in applies and the first-year credit is constrained by a fractional benefit. Recognize that the deductible maximum under the funding rules is not the same object as a level pay credit in a textbook. Any one of those changes can make the certified number look nothing like $190,000 or $320,000.

The gap is the point of the sketch. The difference between the two illustrative credits is about $130,000 a year. The difference between their 401(k) catch-ups is $3,250. Owners who are deciding whether to bother with a pension sometimes stare at the catch-up and miss the larger lever, which is age applied to the benefit limit. Owners who are 60 sometimes hear a colleague who is 50 describe a deposit and conclude the pension is hardly worth the administration. They are not looking at their own year. The illustrations page is where labeled pictures of that kind belong. They should stay labeled when they are copied into a proposal.

Do not interpolate. An owner at 55 is not entitled to the average of $190,000 and $320,000. The relationship between age and the credit is not a straight line, because interest and the shape of the annuity are not straight lines. An owner at 64 is not a larger version of the owner at 60. Near retirement the limit, the retirement age assumption, and the remaining funding period interact in ways that can flatten or even reduce the annual credit relative to age 60 or 62. Ask for your age. Do not borrow someone else's.

What the sketch left out, on purpose

Staff is the omission that most often breaks a real design. A one-participant sketch is the right way to see age. It is the wrong way to budget a practice with employees. Coverage, participation, and nondiscrimination can require contributions for other people. Those contributions are employer money. They reduce the net advantage of the owner's credit. They can also make a design that looked enormous at age 60 merely sensible, or occasionally not worth doing. The staff cost discussion is the correction to every owner-only neighborhood figure, including the two in this briefing. If you are a physician, a dentist, or an attorney with associates and staff, assume the sketch is incomplete until the census is in it. A consultant with no employees is closer to the sketch, and still not identical to it, because entity type and earned income still have to be applied.

The combined deduction limit is the second omission. If the same employer also sponsors a 401(k) and contributes employer money to it, the deduction for the two plans together can be limited. Elective deferrals are treated more gently in that rule than profit-sharing contributions. A design that shows a $320,000 illustrative pension credit plus a full $72,000 of employer profit sharing is not a design. It is two ceilings pasted together. PBGC coverage can change whether the combined limit applies in the way a conference speaker described. Coverage is plan-specific. The PBGC coverage page is the start of the question, not the answer for your document. A plan that covers only substantial owners, and a plan of a professional-service employer with 25 or fewer active participants, are different exceptions. A spouse in the plan, or a junior owner, can change the result.

Roth catch-up does almost nothing to this comparison, and it should be kept in its box. If either owner's 2025 FICA wages from the sponsor were over $150,000, that owner's 2026 catch-up is Roth. The age-50 owner would have $8,000 of Roth catch-up. The age-60 owner would have $11,250 of Roth catch-up. The cash balance credit is not a catch-up. It stays an employer contribution. It is not Roth because the owner is older or better paid. A partner without FICA wages may be outside the Roth rule at either age. That fact does not increase the illustrative pension credit.

Cash and durability matter as much as the first-year size. The age-60 illustrative credit is larger, which means the business has to produce the cash, and the owner has to be willing to repeat a large deposit, or a planned variation of it, without treating every soft quarter as a reason to break the plan. A larger credit is a worse fit, not a better one, if the practice cannot fund it. Minimum funding will still be due, generally September 15 of the following year for a calendar-year plan, even when the year disappoints. The plan lifecycle is the repeating version of that obligation. An illustration that shows only the best year is not a plan you should adopt.

The trust's investments are not the interest crediting rate. In the sketch, 5 percent is a document term. The portfolio can earn less. The employer funds the difference over time. At age 60 there is less time for a shortfall to be smoothed, which is another reason the larger credit comes with less room for a casual investment policy. At age 50 there is more time, and also more years of required administration, Form 5500 filings, and actuarial work before the benefit is paid. The IRS Form 5500 corner and Publication 560 describe the reporting and the small-business frame. They do not price ten extra years of administration. You should, before you prefer the age-50 version of the sketch solely because the annual number feels easier.

How to ask for a real comparison

Ask for your age, your compensation, and your census, under the 2026 limits, with the interest crediting rate stated, with the phase-in stated, and with staff contributions stated rather than omitted. Ask for the minimum required contribution and the maximum deductible contribution, not for a single "max." Ask the CPA which taxpayer would deduct it. If you want to see how sensitive the result is, ask for a second run at a different crediting rate or a lower pay credit, not for a run at someone else's birthday. A self-employed owner-only case can be the clean version of this question. A combo should be run as a combo, with the 401(k) employer money included so the deduction limit is visible.

Refuse any illustration that uses the 2025 benefit limit of $280,000 for a 2026 credit, and refuse any illustration that uses $290,000 as if it were the deposit. Refuse a figure that is not marked illustrative once it leaves the actuary's certification. The certification has a range, a year, and a signature. A neighborhood of $190,000 or $320,000 has none of those. The Department of Labor's Form 5500 page will matter after the plan exists. It does not choose the crediting rate.

If the two ages in your household are both in the plan — you at one age, a spouse at the other — do not assign the larger illustrative credit to both. Each participant's benefit is limited separately. A spouse with lower compensation does not inherit the owner's cap. Family attribution can also pull the spouse into highly compensated or key-employee status. That is a design fact, not a reason to put the spouse on payroll at the last minute without talking to the CPA about reasonable compensation and the real work being done.

What to do in the next two weeks

Do not budget $190,000 or $320,000. Do not average them. Write down your date of birth, your entity, your expected 2026 compensation, and the names and ages of anyone else who works in the business. Note whether a plan already exists and, if it does, how many years you have participated, so the phase-in is not ignored. Note whether 2025 FICA wages were over $150,000, so the 401(k) catch-up and the pension credit stay in separate columns.

Ask for an illustrative range at your age under those facts, with assumptions listed in writing. When the range comes back, leave the label on it until the Enrolled Actuary certifies minimum and maximum for the year you will actually adopt. Send the facts rather than a borrowed age. Two weeks from today is February 15. If the first quarter is already softer than the compensation you wrote down, say that in the same email. A large credit at 60 that the business cannot fund is not the prize version of this comparison. It is the version that has to be redesigned before it accrues.