Defined Benefit Plans
Use Them for Large Tax-Deductible Contributions
Most people think of Defined Benefit Plans as old-school plans that no one uses anymore. Because of a relatively recent tax law change, these plans are back and may just be what you are looking for to build your wealth for retirement.
Unlike Defined Contribution Plans 401(k) and Profit-Sharing Plans that calculate and limit how much you can contribute each year, a Defined Benefit Plan calculates an amount owed to employees as a retirement benefit at a future time (and allows the employer to fund for that benefit no matter how high the contribution amount).
Defined Benefit Plans — Could Be Great For Late Starters!
Generally, a Defined Benefit Plan allows for much bigger deductions for employees who are getting a late start on their retirement planning (or who have lost their plan assets in a divorce or other lawsuit).
For example, if you are 50-year old and make over $210,000 per year and you are just starting to make contributions to a newly formed Defined Benefit Plan — you could make up to $125,000 of tax-deductible contributions per year.
Compare this to the maximum contribution to a profit-sharing plan of $57,000 (2020).
The above numbers illustrate the power of Defined Benefit plans as wealth accumulation tools for clients who have waited to save and need to catch up in a hurry.
This example is for illustrative purposes only and does not take into account your particular investment objectives, financial situation, or needs and may not be suitable for all investors. It is not intended to project the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Is a Defined Benefit Plan the appropriate choice for you and your business?
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Cash Balance Defined Benefit Plans
If you think Defined Benefit Plans sound interesting, you need to learn about the even more powerful and flexible Cash Balance Plan, please click here.