From
Your Perspective:
Small business retirement plans
Defined benefit
plans
The reason that
defined benefit plans
tend to be an uncommon choice is that they can be complex and costly. Each year’s required contribution must be calculated by an actuary whom the plan hires, and the status of the plan must be reported each year to the IRS. Plus, investments have to be planned and supervised so that every year the plan is neither overfunded, which would reduce future tax savings, or underfunded, which would require additional contributions.
But there may be real advantages to having such a plan. If you’re the only
beneficiary,
you’re 15 to 20 years from retirement, and you have a substantial income from other sources, a defined benefit plan allows you to make the largest contribution toward meeting your retirement goals. This approach also gives you the biggest current tax breaks, and has the potential to provide significant annual income when you begin to withdraw from the plan. If you think a defined benefit plan would work for you, you may want to discuss the option with your financial adviser.
If you choose a defined benefit plan, you need professional help to set it up as an HR 10 plan, also known as a
Keogh plan.
These plans are specifically designed for owners of small businesses and self-employed people.
