With the end of the year approaching, now is the time for high income earners to assess whether a defined benefit plan makes sense.
A defined benefit plan allows the highest deductible contributions of any retirement plan. This plan allows you to save for retirement on a tax-deductible basis. Investments made within the plan grow without any current income taxes. The pension plan allows flexibility as to when you withdraw your money, with small minimum distributions commencing upon reaching the age of 70 ½.
Current IRS regulations allow a participant to fund a lifetime pension of up to $210,000/year beginning at age 62, requiring an accumulation of approximately $2.7 million. Depending on your age, compensation and selected retirement date, it may be possible to save up to $300,000 per year into a pension plan!*
The amount that you can save annually depends on how close you are to your selected retirement age. In general, the closer you are to your retirement age, the larger the permitted contribution.
The plan may also provide a valuable life insurance benefit, which is part of the tax-deductible contribution, and provides income tax free (federal and state tax) life insurance benefits to your beneficiary at death.
Upon reaching retirement or termination of the plan, accumulations can be rolled over into an IRA and continue tax-deferred growth. There is no limit as to how large the accumulation can grow once it is rolled over into an IRA.
Pension assets are generally protected from bankruptcy and from judgments and creditors. Many professionals appreciate the added asset protection provided by a pension plan.
So, if you are a small business owner, board member, professional (attorney, physician, independent consultant), you owe it to yourself to investigate one of the few IRS sanctioned tax shelters.
Sapers & Wallack is available to provide a custom feasibility study or additional information.