In our last blog post, we showed the ideal profile of someone who should consider a Fully Insured Pension Plan.
Now we will discuss the reasons.
Defined Benefit Plan Tax Advantages
First, like other forms of qualified retirement plans, contributions are tax deductible.
Second, unlike a defined contribution plan, a defined benefit plan does NOT have contribution limits. This frees the business owner from the contribution limitations of 401(k) and Profit Sharing plans.
There is a maximum annual benefit (not contribution) which currently is $210,000. The allowable contribution amount is a function of a participant's age, compensation, and plan formula. That's the reason it fits an older business owner with high compensation, but with fewer employee and most employees are younger than the owner.
Two Types of Defined Benefit Plans
a. Traditional pension plan - where the employer assumes all the investment risks.
b. Fully insured pension plan - where the employer assumes no risk and risk is transferred to an insurer.
In our next blog post, we will discuss a key difference between the traditional pension plan and a fully insured pension plan, and why the latter is a perfect fit for an old small business owner.
Now we will discuss the reasons.
Defined Benefit Plan Tax Advantages
First, like other forms of qualified retirement plans, contributions are tax deductible.
Second, unlike a defined contribution plan, a defined benefit plan does NOT have contribution limits. This frees the business owner from the contribution limitations of 401(k) and Profit Sharing plans.
There is a maximum annual benefit (not contribution) which currently is $210,000. The allowable contribution amount is a function of a participant's age, compensation, and plan formula. That's the reason it fits an older business owner with high compensation, but with fewer employee and most employees are younger than the owner.
Two Types of Defined Benefit Plans
a. Traditional pension plan - where the employer assumes all the investment risks.
b. Fully insured pension plan - where the employer assumes no risk and risk is transferred to an insurer.
In our next blog post, we will discuss a key difference between the traditional pension plan and a fully insured pension plan, and why the latter is a perfect fit for an old small business owner.
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