what was a 412 i plan 
a 412 i plan was a defined benefit pension plan that was designed for small business owners in the u s it was classified as a tax qualified pension plan so any amount that the company contributed to it could immediately be taken as a tax deduction by the company the employee could also deduct their contributions guaranteed annuities or a combination of annuities and life insurance were the only things that could fund a 412 i plan the 412 i plan was replaced by the 412 e 3 plan after december 31 2007 understanding a 412 i plannotably 412 i plans were developed for small business owners who often found it difficult to invest in their company while trying to save for employees retirement the 412 i plan was unique in that it provided fully guaranteed retirement benefits insurance companies backed and offered the 412 i plans to employers and only insurance products like annuities and life insurance policies could be held in the plan contributions to it provided large tax deductions an annuity is a financial product that an individual can purchase via a lump sum payment or installments the insurance company in turn pays the owner a fixed stream of payments at some point in the future annuities are primarily used as an income stream for retirees due to the large premiums that had to be paid into the plan each year a 412 i plan was not ideal for all small business owners the plan tended to benefit small businesses that were more established and profitable for example a small business that had reached a stable mature and profitable state would have been better positioned to create a 412 i plan than a bootstrapped startup or one that had only recently received angel or seed funding these companies also often don t generate enough free cash flow fcf to put away consistently for employees retirement instead the founding team members often re invest any profits or outside funding back into their product or service to generate new sales and make updates to their core offerings 412 i plans and compliance issues412 e 3 due to the abuses of the 412 i plan resulting in tax avoidance schemes the internal revenue service irs moved the 412 i provisions to 412 e 3 effective for plans beginning after december 31 2007 412 e 3 functions similarly to 412 i except that it is exempt from the minimum funding rule according to the irs the requirements for 412 e 3 are as follows 