Defined Benefit Pension Plan 412i


	Defined Benefit Plan What is the 412(i) Plan?

The 412(i) plan is a tax-qualified, defined benefit pension plan for business owners and their employees that must be funded with a combination of life insurance and annuities, or annuities alone. The guarantees of the 412(i) plan are derived from the life insurance and/or annuity contracts that fund it and are dependent on the claims-paying ability of the issuing life insurer. Therefore, it's essential to choose a reputable life insurance company with superior financial strength.

Can the 412(i) Plan Work for You?

Generally, if you're in your peak earning years, the 412(i) defined benefit pension plan may be desirable, particularly if you:

Are 45 years of age or older
Own a small company or professional practice with five or fewer employees that's highly profitable, and have a steady revenue stream and cash flow, since level annual or more frequent contributions to the 412(i) plan are required.
Have a substantial tax liability and want a potentially significant income tax deduction each year.


	Maximum Retirement Savings and Maximum Tax Deductions The 412(i) defined benefit pension plan has a number of advantages: Contributions are generally 100% tax-deductible for your business. There are potentially greater deductible contributions than those that can be made under traditional defined benefit plans. Plan benefits are guaranteed by the claims-paying ability of the issuing insurer, as long as the premiums are paid on time-and they are free of market risk. 412(i) plans are exempt from the minimum funding requirements usually applicable to traditional defined benefit plans, which can make the administration of a 412(i) plan simpler than that of a traditional defined benefit plan.

	Traditional defined benefit plans A traditional defined benefit plan is the most efficient for providing retirement benefits - because that's where it focuses the money. Benefits are usually expressed as a monthly payment based on service, pay and retirement age. Each dollar you put into a defined benefit plan produces much higher benefits for employees who stay until retirement - and much lower benefits for employees who leave early - than the same dollar put into a typical defined contribution plan. Tax deductions for defined benefit plans can be very large; they are not subject to the $40,000 or 100% DC plan limit. They reach a peak when the plan is set up about 10 years before retirement. Here's an example of a plan that pays the IRS maximum benefits-the benefit level can be adjusted to fit your retirement income and tax deduction objectives.

In addition to other tax-qualified rules, the Internal revenue Code imposes limits on the amount of lfe insurance that can be purchased in a qualified retirement plan. As a result, a 412(i) plan cannot be funded solely by life insurance. Also, loans are not permitted under a 412(i) plan, and any forfeitures under the plan and dividends paid by the insurer will be used solely to reduce future premiums. (Dividends are not guaranteed, nor are current dividends an estimate of future performance.)

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