412 ( i ) RETIREMENT PLANS
As a business owner you have an array of retirement planning options to choose from, a 412(i) plan can be a powerful retirement planning tool because of its many benefits.
There Is Still Time to Save for Your Retirement
As a well-established business owner you are probably wondering if it's still possible to
find a way to save enough for your retirement. There are ways to fund and support the type of lifestyle you want to have for you and your family when you are ready to retire? This may require knowing how much planning and funding you'll need for the your retirement and all the things you may want or need to do when you get to those "Golden Years". For all those things you want to do as well as the ones you always wished you had the time and money to do, with a 412i Plan this will be much easier.
DEFINED BENEFIT PLANS
412i plans are the only qualified retirement plan to provide employees with a guaranteed retirement benefit payable at normal retirement age, with reduced benefits payable at an earlier retirement date.
Benefit is usually a monthly benefit based on compensation and years of service, and payable for the lifetime of the participant.
Plans may allow for "cash out" at retirement, with participant receiving a single lump sum instead of monthly payments.
Employer has obligation to make necessary contributions. Premiums may be paid to the Pension Benefit Guaranty Corporation to insure the benefits.
A 412(i) plan is a defined benefit retirement plan whose funding requirements fall under Internal Revenue Code Section 412(i). If a plan meets the requirements of this subsection, it is exempt from the complex funding rules of Section 412 of the IRC applicable to all other defined benefit plans.
Since the passage of the Tax Reform Act of 1986 and the Omnibus Budget Reconciliation Act of 1987, the small business owner has lost interest in defined benefit plans.
A "fully insured" 412(i) plans provides an attractive alternative solution offering simplicity, maximum current tax-deductible contributions and guaranteed retirement benefits.
A "Defined Benefit 412(i) plan" is a special type of defined benefit pension plan, with three significant characteristics:
Fully Guaranteed Retirement Benefit
Must be funded with Insurance Contracts
Typically generates largest possible tax deduction
Defined Benefit 412(i) Plans allow deductible contributions in excess of 25% of compensation.
412(i) Plans are ideally suited for the small business employer (6 or less employees) who was unable to save in the early years and now, with stable future business profits, desires to put away a very large, tax deductible contribution.
In addition to providing funding for future retirement income, tax deductible 412(i) contributions reduce current taxable income and increases tax deductions.
Self employed individuals, with expectations of stable future income, may find the features of the 412(i) attractive.
Business owners, starting a second career, should give consideration to the creation of a 412i Defined Benefit Plan.
Additional protection for family and heirs may be provided with the addition of an insured death benefit to the plan. This also further reduces taxable income and increases tax deductions
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