Retirement Planning for Baby Boomers, part 7 by Bill Roberts

Defined Benefit Plan

If you are within 10 years of retirement and you don't have enough set aside to maintain your lifestyle upon retirement, you might want to consider creating your own Defined Benefit Plan Trust. It is a way to accumulate a lot of money in a short period of time. Here are the Pros and Cons from the IRS website:

• Significant benefits possible in a relatively short period of time.
• Employers can contribute (and deduct) more than under other retirement plans.
• Plan provides a predictable benefit.
• 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.

Basically, you want to use this only if you have substantial taxable income. There are two main benefits to setting this plan up:

•·        You (your corporation) can "contribute" a large amount annually as a tax deductible expense

•·        You have control over how it is invested

The amount that is contributed each year is determined by an "enrolled" actuary that you hire. He will determine the amount necessary for the corporation to contribute in order for it to be able to provide the "defined benefit" upon your retirement. This could be an amount upwards of $100,000.00 annually if your "benefit" is substantial and you don't have all that many years until retirement.

An actuary can cost as little as $2,000.00 per year. If you have substantial assets in the plan that is probably less than a plan administrator would charge for other types of fund management (i.e. $1,000,000.00 under management with a 2% fee equals $2,000.00). If you have more "assets" under management "do the math."

You have control over how your assets are invested. This means that if you want to invest in real estate you can.

One of the only meaningful caveats is that all "qualified" employees of your corporation must be given the same plan (not necessarily the same benefit however). This rule makes it a more desirable strategy for a one-man corporation, or a company that "leases" employees, or a company that utilizes independent contractors. A few other special circumstance companies may wish to use defined benefit plans as well.

If you would like more information or need help setting up your defined Benefit Plan Trust I have an actuary I could refer you to. Call Bill Roberts Baby Boomer Retirement Planning at 619-244-4610.