Pension consultant and third party administrator serving clients nationwide.
Fill in the details below to receive your personalised pension estimate.
US numbers only, e.g. (646) 409-1660
Average of your last 3 years' compensation
* Required field 🔒 Your information is private and will only be used to generate your estimate.
The primary benefit is that the premiums for the policy are paid from the contributions made to the defined benefit plan. The contributions are tax-deductible and this effectively makes the premiums tax-deductible too!
In this article, we will introduce defined benefit plans and how they can benefit self-employed or business owners with or without employees. This is only a basic introduction to a defined benefit plan and you can read more about it in other sections of our website.
A Defined Benefit Plan is a type of pension plan sponsored by an employer that gives the maximum possible benefit to the participants. It is an ideal solution for someone who is a business owner or a self-employed individual as it can help save for retirement while lowering taxable income.
Contributions to the defined benefit plan are based on the age and income of the owner. These amounts typically range between $100,000 to $300,000 and higher in some cases. The employees will receive between 5% to 7.5% of their compensation as a contribution to the profit-sharing plan. This design is called a floor offset plan and is used to provide the maximum benefits to the owners.
Integrating life insurance in a Defined Benefit Plan offers a unique and advantageous strategy for both employers and employees. This integration can provide additional financial security and tax benefits.
Life insurance can be purchased inside a defined benefit plan as the money in the plan can be used to pay the premium of the life insurance policy. Since the contribution to the DB plan is tax-deductible, the life insurance premiums are now being paid with pre-tax money.
However, the face amount of the life insurance and the premium amounts are subject to maximums calculated by the actuary. These amounts are based on the age and compensation of the individual participant. We can help you determine these amounts, please feel free to email us at info@pensiondeductions.com.
The entire contribution of the DB plan cannot be used to pay the insurance premiums. As such, a portion of the contribution will be used to pay the premium and the remaining amount will be invested as a side fund in non-insurance investments.
The insurance policy in the plan is typically a whole life policy or universal life policy. The face value of the policy will remain the same irrespective of the type of policy.
