Defined Benefits
Options for high-earners seeking tax-advantaged savings plans.
Defined Contribution
A defined-contribution plan allows employees and employers (if they choose) to contribute and invest funds over time to save for retirement
Tax-advantaged savings for high-earners.
Combining Defined benefit and defined contribution plans can give employees extra retirement income while protecting employers from high tax burdens. The DB/DC combination is a win/win for employer and employee alike.
Let’s run the numbers:
Without a contribution, each owner will pay $100K in taxes this year. With the contribution, that tax burden will be reduced by 80% to $20K. Effectively re-routing $80K into the funding of the Defined Benefit Plan.
Each owner defers $189K/year ($80K of which would have gone to Uncle Sam).
Each staff member receives their own retirement contribution. At this time, there are 5 staff members receiving an average retirement contribution from the owners of $4,400/year. Totaling $22K/year.
The total cash needed to fund this DB/DC plan would be $400K/year ($160K of which would have gone straight to tax payments instead of into their own retirement savings plan).
Want A Deep Dive Into Defined Benefits?
What Is The Difference Between Defined Contribution and Defined Benefits?
Defined Benefit
A defined-benefit plan provides a specified one-time payment amount upon an employees retirement
Upside and Downside of Defined Benefits
- Substantial benefits can be provided and accrued within a short time – even with early retirement
- Employers can contribute (and deduct) more than under other retirement plans
- Plan provides a predictable benefit
- Vesting can follow a variety of schedules from immediate to spread out over seven years
- Benefits are not dependent on asset returns
- Plan can be used to promote certain business strategies by offering subsidized early retirement benefits
- Most costly type of plan
- Most administratively complex plan
- An excise tax applies if the minimum contribution requirement is not satisfied
- An excise tax applies if excess contributions are made to the plan
How To Get My Retirement Benefit Payments
Single Life Annuity
If you’re saving for just yourself, a single life annuity may be the perfect choice. You receive a fixed monthly benefit until you die; after you die, no further payments are made to your survivors.
Qualified Joint & Survivor Annuity
This plan is best for married couples, since the benefits continue to ecru so long as the beneficiary is alive. You receive a fixed monthly benefit until you die; after you die, your surviving spouse will continue to receive benefits (in an amount equal to at least 50 percent of your benefit) until his or her death.
Lump-Sum Payment
If you want the amount of your retirement right away, and not wait for the retirement age, you can opt for a Lump Sum. You receive the entire value of your plan in one payment up front; no further payments will be made to you or your survivors. This amount may or may not be taxable, but it can be saved, spent or passed on to inheritors.
Ready to set up your Defined Benefits Plan? Connect with our expert team.
