A solo attorney should test a defined benefit plan against earned firm cash, compensation, and possible staff coverage without treating client trust funds as available.
Before a solo attorney requests a defined benefit plan illustration, separate money the firm has earned and can use from client property, uncollected invoices, and a hoped-for contingent fee. A large trust account balance does not create employer funding capacity. The first question is whether the practice can meet a professionally determined obligation from its own operating resources through a weaker collections period. Our business-owner plan checklist covers general fit; this article focuses on the law firm's cash boundary.
List the operating bank account, earned fees collected, invoices still unpaid, client trust balances, near-term payroll and overhead, taxes, and a protected operating reserve. Do not add client trust funds to the firm's available cash. ABA Model Rule 1.15 requires client and third-party property to be kept separate from lawyer property; each jurisdiction's rules and the actual fee agreement govern precise transfers and treatment of advances. A trust accounting issue should go to the firm's legal ethics adviser, not be solved by a retirement-plan illustration.
Uncollected fees also are not today's operating cash. For a contingency practice, note the uncertain timing of a settlement and ask whether the plan would still be workable if the largest expected matter closes later. The trust-accounting guide explains segregation controls; keep this cash screen separate from the trust reconciliation.
Assume a solo litigation firm has $200,000 in client trust, $120,000 in its operating account, and $80,000 of unpaid invoices. For near-term planning, exclude the trust balance and unpaid invoices. If $55,000 of payroll and overhead, $30,000 of tax reserve, and a $20,000 minimum operating cushion are protected, the illustrative operating headroom is $15,000 ($120,000 − $55,000 − $30,000 − $20,000). A proposed $80,000 payment would fail that near-term cash screen. The $15,000 is not a legal contribution limit or an actuarial calculation. Have the enrolled actuary determine funding and the plan administrator confirm applicable payment deadlines; the CPA must test the firm and owner facts.
The attorney's compensation depends on the practice's legal and tax structure. For an S corporation, the IRS states that shareholder distributions are not retirement-plan compensation; W-2 compensation is the relevant starting point. A sole proprietor follows different self-employed earnings calculations. Do not infer allowable contributions from gross fees, draws, trust balance, or a website chart. The IRS defined benefit overview explains the benefit formula and enrolled actuary's annual funding role.
Even a practice called “solo” should document current workers, likely hires, related entities, and existing plans before design. The IRS qualified-plan requirements guide covers participation and coverage, while DOL guidance describes sponsor duties where applicable. Ask the plan administrator which tasks and filings apply to the actual firm, not a generic one-person label.
Bring the firm-only cash schedule, compensation and entity records, worker census, tax returns, and a conservative collections forecast. Ask the actuary for a plan-specific funding illustration and the CPA to compare it with operating cash and tax facts. If a contingent fee is delayed or a hire changes coverage, refresh the file before relying on an old estimate. The accompanying Emparion video describes the structure for self-employed owners generally; its older figures and examples are not the basis for this law-firm screen. TaxBowl's tax advisory team can help organize the accounting inputs for that professional review.
