Defined Benefit Plans are a type of qualified retirement plan that may allow one to save much more per year than traditional Defined Contribution plans like a 401(k)s. The higher contribution amounts can be very advantageous for business owners who are near retirement and are looking to save large sums of money on a pre-tax basis. While not everyone is going to maximize savings to these types of plans, they can allow for contributions in excess of $200,000 per year.
Defined Benefit Plans also allow for, as the name states “define” what you want in retirement. For some types of Defined Benefit Plans, it means the annual income in retirement is defined today while in others a determined lump sum value for retirement. To run these plans an actuary will be involved to calculate the contributions needed to allow for the future income or lump sum.
Important factors to consider when contemplating a defined benefit are age of participants and the number of employees. These plans typically allow older individuals to save more, and the contributions can only be made by the employer on behalf of any employee who qualifies.
If you are a small business owner and want to see if you qualify for a Defined Benefit Program, contact a Trilogy Advisor.