A defined benefit plan (DB) is an IRS approved qualified retirement plan. A DB provides a specific benefit at retirement age that accrues through earnings and contributions. Defined benefit plan contributions are determined by actuarial assumptions. Since an older participant has less time to earn, a larger contribution can be made than for a younger participant. The example in the table below illustrates the point. It looks like a wide contribution discrepancy exists between the 55 year old and 21 year old participant, yet they are actuarial equivalents.
From a cost standpoint, defined benefit plans work well for owner-only enterprises. A solo owner 401k is another effective option. Administration and actuarial costs are very reasonable since there aren’t any employees to account for. The DB allows for much higher savings with slightly greater administration costs. You can also borrow from your account balance should the need arise.
We’ve summarized some key defined benefit plan advantages. If your retirement plan needs a healthy boost or you would like to enjoy greater tax benefits, you owe it to yourself to explore how a defined benefit plan can accelerate your path to the retirement security that you deserve. There’s no cost nor obligation for a detailed consultation and plan proposal that will help you evaluate the option that will work best for your needs.