Defined Benefit Plans

Defined Benefit Plans

Make Significant Tax-Deductible Retirement Contributions

Many business owners assume Defined Benefit Plans disappeared years ago. In reality, they remain one of the most powerful retirement and tax-planning strategies available for the right business owner.

Unlike a 401(k) or profit-sharing plan, which limits annual contributions to IRS contribution limits, a Defined Benefit Plan is designed to provide a specified retirement benefit at retirement. The annual contribution is determined by an actuary and is based on factors such as your age, compensation, years until retirement, and the promised retirement benefit.

Because of this unique design, Defined Benefit Plans can allow substantially larger tax-deductible contributions than most other qualified retirement plans.

An Excellent Strategy for High-Income Business Owners

Defined Benefit Plans are particularly attractive for:

• Business owners with consistent, predictable profits

• Professionals such as physicians, dentists, attorneys, consultants, and financial advisors

• Individuals who started saving for retirement later in life

• Business owners looking to dramatically reduce current taxable income

• Those who want to accelerate retirement savings during their highest earning years

For many business owners in their 50s or 60s, annual deductible contributions can often reach well into the six figures, depending on age, income, retirement objectives, and actuarial calculations. In some situations, allowable contributions may be significantly higher.

Why Consider a Defined Benefit Plan?

A Defined Benefit Plan may provide several important advantages:

• Potentially much larger tax deductions than a 401(k) or profit-sharing plan

• Accelerated retirement savings

• Reduced current federal and, where applicable, state income taxes

• Tax-deferred growth on plan assets

• Ability to combine with a 401(k) and profit-sharing plan in many situations for even greater retirement savings

Because contribution amounts are determined using actuarial calculations, every plan is customized to the owner’s circumstances and retirement goals.

Is a Defined Benefit Plan Right for Your Business?

Defined Benefit Plans work best for businesses with stable cash flow that can commit to making annual contributions. Since these plans have required funding obligations and additional administrative requirements, they are not appropriate for every business.

Our team can help determine whether a Defined Benefit Plan is an appropriate strategy based on your business structure, profitability, retirement timeline, and long-term tax planning objectives.

Looking for Even More Flexibility?

Many successful business owners ultimately choose a Cash Balance Plan, a modern type of Defined Benefit Plan that combines many of the advantages of traditional pension plans with features that are easier for participants to understand. Cash Balance Plans often allow for very large tax-deductible contributions while providing greater flexibility for business owners.

Contact us today to learn whether a Defined Benefit Plan or Cash Balance Plan could become an important part of your retirement and tax-reduction strategy.

Important Disclosure: This information is provided for educational purposes only and should not be considered tax, legal, or investment advice. Contribution limits and funding requirements are determined under current IRS rules and actuarial calculations and vary based on each individual’s circumstances. You should consult with your tax advisor, ERISA attorney, and qualified retirement plan professional before implementing any retirement plan strategy.