Most owner-operated professional practices — PCs, PLLCs, and S-corps — pay the owner W-2 compensation. §401(h) capacity is sized against that W-2 wage just like the underlying cash balance contribution.
The W-2 sizing mechanic
Cash balance contributions are calculated against eligible compensation up to the §401(a)(17) limit ($350,000 in 2025). §401(h) capacity is then sized as a function of the cash balance contribution, not the W-2 directly.
Reasonable compensation
S-corp owners need to confirm that their W-2 is reasonable for the work performed before maximizing plan contributions. Otherwise the IRS reasonable-compensation rules may recharacterize distributions as wages.
Coordination with profit-sharing
The 401(k) + profit-sharing layer continues to operate normally alongside the cash balance + §401(h) stack. Many design teams target the full §415 limit on the DC side and use §401(h) as the additional medical-only capacity beyond that.