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 years 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 $56,000 (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.
IIs a Defined Benefit Plan the appropriate choice for you and your business? If you feel the clock ticking, perhaps it’s time to contact our office for a free consultation (which you can do by emailing email@example.com).
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. To learn more, please click here. You can also click below to view/listen to a voiced-over PowerPoint Presentation explaining Cash Balance Plans.