# Lifetime limit

> The cap on what a Cash Balance account can pay out, and the four things that set it.

Source: https://askactuary.com/415b-limit  
Author: Mike Rutkowski, FSA, EA, MSPA

A 401(k) limits how much goes in each year. A Cash Balance plan has no fixed annual contribution limit (but see [the contribution range](https://askactuary.com/contribution-range) for the description of the annual maximum deductible contribution determined by the actuary.) Instead, IRC section 415(b) limits the benefit the plan can pay out, for each participant. That cap is what ultimately determines how much an owner can put away.

## The short version

- 415(b) caps the **annual benefit** at the lesser of a dollar limit ($290,000 in 2026) or 100% of the participant's highest three-year average pay.
- The dollar limit phases in over the first **10 years of plan participation**.
- The limit is lower for benefits starting before age 62, and increases for benefits starting after age 65.
- For a lump sum, the annual limit is converted using at least 5.5% interest, which works out to about $3.7 million for a 62-year-old with 10 years in the plan in 2026.

## The limit is on the benefit

The law states the 415(b) limit as a yearly pension, a straight life annuity payable for life, starting at normal retirement (62 to 65). A Cash Balance account must never be worth more than that maximum pension converted to a lump sum. The [calculator](https://askactuary.com/calculator) does that conversion year by year.

## Four things set the limit

| Factor | Rule | Effect |
| --- | --- | --- |
| Dollar limit | $290,000 a year for 2026, indexed for inflation | Sets the ceiling for high earners |
| Pay limit | 100% of average pay in the highest 3 consecutive years, with pay capped at $360,000 for 2026 | Lower earners hit this first |
| Participation and service | The dollar limit is reduced 10% for each year of plan participation short of 10. The pay limit is reduced 10% for each year of service (even prior to the start of the business) short of 10 | A new plan's limit starts at one-tenth and grows each year |
| Age | Benefits starting before 62 are reduced. Benefits starting after 65 are increased | The lump-sum cap climbs quickly through the late 50s and early 60s |

## Converting to a lump sum

Most owners take their benefit as a lump sum and roll it to an IRA. To find the largest allowable lump sum, the annual limit is converted using an interest rate of at least 5.5% and the IRS mortality table for that year. The 5.5% floor means falling interest rates do not raise the cap the way they raise some other lump sums.

## Why this matters more than the annual contribution

The annual contribution in a Cash Balance plan is what it takes to fund a benefit that stays within this limit by a target date. That leads to a few practical points:

- **Older owners can contribute more each year,** because they have fewer years to reach a larger limit.
- **There is a finish line.** Once an account reaches the cap, contributions for that owner have to stop or significantly slow down.
- **Strong investment returns near the cap can backfire.** Assets above the maximum can't be paid to the owner. See [Investments and risk](https://askactuary.com/investments) for how excess assets are dealt with.
- **All defined benefit plans of the same employer count together.** A prior plan's benefits use up part of the limit.

**Try it!**

The [lifetime limit calculator](https://askactuary.com/calculator) projects the cap for the next 10 to 15 years from a birth date, hire date, plan start date, and pay.

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Educational information only. Not tax, legal, or investment advice, and not an actuarial valuation.
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