A Retirement Plan That Delivers Huge Tax Savings
A Defined Benefit (DB) plan is an IRS-approved qualified retirement plan that allows small business owners and self-employed professionals to make large annual tax-deductible contributions that can save them tens of thousands of dollars in taxes each year. Over the life of a Defined Benefit plan, a plan owner can potentially cut hundreds of thousands of dollars in taxes while rapidly and tax-efficiently building a multi-million dollar nest egg.
For example, a 52-year old small business owner making $450,000 per year in income can potentially cut his/her tax bill by over $80,000 and save $227,000 for retirement every year.
What is a Defined Benefit plan?
Defined Benefit plans have been around for decades. In years past, large corporations used to fund Defined Benefit plans to pay for their employees' retirement. A company would contribute a certain amount each year to a plan during an employee's working years to build up the plan to a point that it would be able to pay a set (defined) benefit to that employee during each year of his/her retirement.
Today the maximum annual benefit that a Defined Benefit plan can target to be distributed annually as a 'benefit' to an employee in retirement is $210,000. Thus, in order to be able to distribute $210,000 annually on an ongoing basis, the plan must have much more in assets than that. Today the IRS limit on how big a Defined Benefit plan can grow is $2.5 million. Learn more about Defined Benefit plans here, on the Internal Revenue Service (IRS) website.
**With our process, a plan owner is essentially both the company (that funds the Defined Benefit plan with tax-deductible contributions) and the ultimate owner and beneficiary of the plan assets in retirement.**
Defined Benefit Plans Offer a Number of Advantages
Larger Contribution Levels. DB plans have the highest allowable, tax-deductible contribution limits of qualified plans - $100,000 or more. This means a DB plan owner could contribute 2 to even 4 times more than he/she could put into a SEP-IRA or 401(k)
- In this example, a 52-year old earning $300,000 can put over 3x as much in a DB plan alone as she could in a SEP-IRA or 4x as much in DB Plan combined with a 401(k).
Huge Tax Savings. The high contribution levels of DB plans allow plan owners access to larger tax deductions than possible with SEP-IRAs or 401(k)s. These deductions can add up big tax savings - $40,000 or more every year.
- In this example, a 52-year old freelance consultant with an annual income of $450,000 can potentially cut his/her tax bill by close to $70,000 or over $80,000 in a single year by forming a Defined Benefit plan
Rapid Wealth Creation. The assets you contribute to a DB plan grow tax-deferred. This growth, combined with the higher contribution limits for DB plans, allow you to build a large retirement fund more quickly than you could with other retirement plans.
- A 50-year old business owner could put $125,000 in a DB plan every year and build a retirement nest egg of $1,000,000 in just 7 years.
Easy Rollover: Tax-free rollover to an IRA at retirement (or at plan termination).
Simple Set-up: We walk you through the process from start to finish.
Flexible Investments: We work with you to develop an investment strategy suitable for your circumstances.
Defined Benefit Plans Work Even If You Have Employees
For professionals who have 10 or fewer employees, a specific type of DB plan provides an excellent solution.
A Cash Balance Defined Benefit plan combined with a Safe Harbor 401(k)/Profit Sharing plan allows the owner access to the highest allowable contribution to a qualified plan — $200,000 or more annually — and allows them to capture the tax savings from the contribution. The 401(k)/profit sharing plan offers a valuable bonus to employees, and keeps the required contributions on their behalf limited and controllable. Owners and employees have different contribution rates (see estimates below).