412(i)
Defined Benefit Plans
The tax law changes of
EGTRRA 2001 equate to significantly higher tax deductible contributions
that would otherwise be available with a 401(k) or SEP plan where the
maximum contribution is $40,000.00. The higher permissible contributions
have resulted in significant numbers of high income professionals
and business owners making
412(i) plans their first choice for qualified retirement plans.
Who are
ideal prospects for implementing a 412(i)
Defined Benefit Plan ??
412(i) defined benefit plans are ideally best
suited for high income professionals, sole
proprietors, partnerships, S and C corporations.
-
Business owners
typically 40 or older with employees fewer than ten.
Businesses with stable
and consistently high income.
412(i) Defined Benefit
Plan Advantages are:
- Creates substantially higher deductions than traditional
retirement plans.
- 412(i) defined benefit plans guarantee retirement
income without having to worry about market volatility and
fluctuations.
- The ability to pay for life insurance
with pre-tax dollars and the ability to protect it from creditors.
- Simple plan administration--An enrolled actuary is not required to
set up the plan.
- Retirement benefits are fully guaranteed by the insurance
company that has issued the life or annuity contract.
-
412(i) Plan
Funding
At the inception of the 412(i) plan the
specific amount needed to guarantee the retirement income stream is
determined by age and the number of years to fund the plan. The cash values of an annuity or life
insurance contract are used to accumulate retirement funds. A
combination of both may be used for additional flexibility.
The benefits provided by the 412(i) plan must be equal to the
guaranteed cash values of the annuity or life insurance contract so that
the IRS will not determine the plan to be noncompliant. Loans during the
lifetime of the plan are not permissible and any excess life insurance
dividends or annuity interest must be applied to the following years
plan contribution.
Retirement planning for highly compensated individuals has become far
easier today with the cost effectiveness and simplicity associated with
implementing a 412(i) plan. Consider using a 412(i) plan in the future
if you meet the above criteria and are primarily interested in a
qualified plan that provides maximum tax deductible contributions,
protection against market volatility and a guaranteed retirement income.
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