Defined Benefit Plan 412(i)
A defined benefit plan defines how much money you will receive at retirement. To determine this amount, a plan must calculate how much you need to contribute to reach your retirement goal. Therefore, with a defined benefit plan you are allowed to contribute larger amounts to ensure proper funding for your future defined benefit. These larger contribution amounts are allowed by using the guaranteed interest rate within insurance policies, allowing for much higher plan contributions than a standard defined benefit plan would allow.
Do I qualify?
A defined benefit plan 412(i) is appropriate for any business owner whether a S Corp, C Corp, LLC, Partnership or someone who is a sole proprietor seeking deductions of $100,000 or more if you qualify.
Advantages of 412(i) plans
Provides protection to beneficiary upon death before retirement. Plan sponsor pays premium. Premiums are generally tax deductible to the employer. In the event of death before retirement, the beneficiary receives annuity cash value and life insurance death benefit. Plan benefits are not subject to market volatility. Plan benefits are guaranteed by the claims paying ability of the issuing insurance company. Protection for beneficiaries in the event of premature death.
Disadvantages of 412(i) plans
Must comply with most of the IRC's rules applicable to qualified plans, as well as ERISA. Plan investments are more conservative than are available under some other types of plans. Offers less plan design and investment flexibility Participant loans are not permitted Initial costs may be higher than under a traditional defined benefit plan.
Frequently asked questions
- What are the advantages of a 412 plan?
- Why are 412(i) contributions much larger than those of a 401(k) or profit sharing plan?
- What factors should I consider when I evaluate a defined benefit plan?
- Are my contributions and investments protected from my creditors?
- Will my assigned pension analyst work with my existing advisors (CPA, Tax Attorney Estate Planning Attorney)?
- What amount can I contribute to the plan?
- What is the length of timeframe I can contribute?
- How long will it take to customize my plan?
