Defined Benefit Plans
A defined benefit plan is a very popular retirement vehicle for those employers who have a goal of achieving higher levels of contributions and tax deductions. Although defined benefit plans are somewhat less flexible than other types of plans, they do offer a degree of flexibility. They can be used strategically in a variety of situations including sale of a business, buying out an owner or purely for tax and retirement motivated savings. Contributions in defined benefit plans are often significantly higher than in other types of qualified plans. Any type of entity may sponsor a defined benefit plan including: Corporations, Sole Proprietorships, LLCs, Partnerships and Non-Profit organizations.
| Age | Maximum Contributions Defined Benefit Plan 2010 | Minimum Salary to Achieve Contribution |
| 30 | $31,700 | $195,000 |
| 40 | $61,000 | $195,000 |
| 50 | $118,600 | $195,000 |
| 60 | $187,800 | $195,000 |
| 70 | $172,800 | $ 245,000 |
Eligibility can range from immediate to maximum of 2 years of service (with immediate vesting) and age 21. The employer may also require 1,000 hours of service.
The plan must be established by the fiscal year end (12/31 for calendar year companies). Other features include Participant Loans & Vesting.
Defined Benefit Profile
Dr. Tim Bryant is an anesthesiologist and has just turned age 51. He has a successful medical practice with substantial income and no employees. He has finished paying off his medical school loans and putting his son through college, but has yet to make any serious commitment to saving for a comfortable retirement. He knows that he is behind and wants a vehicle to help him catch up as quickly as possible.
Design
Dr. Bryant implements a defined benefit plan. This will allow him to save over $ 130,000 per year. He is thrilled about the tax deduction and equally as happy that he can put enough away to be able to retire according to his plan.
Investments
Dr. Bryant is the plan trustee and will make investment decisions for the plan assets. He will work with his financial planner to select an investment strategy that will match his objectives and risk tolerance.
Success
The professional staff at Pension Strategies helped Tim Bryant with the design and implementation of his new plan and will continue to assist him as his needs grow and change. As part of the annual administration process, Pension Strategies will continue to help him reach his goals. He is very relieved that he is now on the road to financial freedom.