Contact Us
Firm Overview
Why Legend Is Different
Client Types
Professional Biographies
Frequently & Rarely Asked Questions
Risk Spectrum
Investment Strategies
Second Opinion
Global Investment Pulse
Event Calendar
Press Center
Legend News
Clients Only
Career Opportunities
Newsletter Sign-up
Site Search
Site Map
Tell A Friend About This Website
Financial Briefs


Phone: (412) 635-9210
  (888) 236-5960
Connect With Legend:
Subscribe to me on YouTube

A Defined Benefit Plan Lets You Sock Away Large Amounts If You Can Overcome Some Obstacles

Is your 401(k) not enough? With a Defined Benefit (DB) plan, you can sock away around $2 million for retirement over a relatively short period of time while deferring taxation. Plus, you can still contribute to a 401(k), SEP, or other personal retirement account. If you’ve gotten a late start on retirement saving, a DB plan could help you quickly catch up. But it won’t have much effect unless you can afford to fund it generously—for yourself and your employees.

Unlike a Defined Contribution plan, such as a 401(k), which is built around what goes into it, a DB plan is based on what comes out during retirement. A fully funded plan could guarantee that you’ll receive as much as $2 million, either in a lump sum or as annuitized payments. To make sure you get there, actuarial calculations determine how much you must contribute each year. The size of that annual contribution is influenced by many factors, including the number of employees participating, their age and salary, and performance of the plan’s investments. In good years for the market, your contribution may be smaller, while a weak market could require you to write a larger check.

A DB plan lets you receive an annual benefit equal to 100% of your company salary, up to $180,000 a year, until your benefit reaches the $2 million limit. With no limit on the annual contribution, a DB plan can be the ultimate catch-up tool for retirement for a small business owner with few employees and who is nearing retirement. Assuming you have the cash to make the maximum contributions allowed, you could accumulate $2 million in as little as a decade, depending on the return on plan investments. Meanwhile, you can continue to fund your own Defined Contribution plan, deferring taxation on another $45,000 in income each year.

The chief drawback to a DB plan is that if you have employees, you’ll have to fund their retirement benefit, too. That may not be a huge burden if your workers are mostly young and earning low salaries. But if you’re paying into the plan for well-paid employees nearing retirement age, the total contribution required could amount to a substantial drain. In general, any employee who is at least 21 and has worked for the company for a year or more must be covered by your plan.

Of course, making contributions for employees won’t be an issue if yours is a one-person business. In fact, even those without a corporate structure may establish a DB plan.

DB plans offer estate planning advantages. If your plan is set up to continue payments to a surviving spouse after your death, the ongoing income won’t be taxed as part of your estate, though your spouse will pay income tax on the payouts. In contrast, an inherited IRA or 401(k) could be subject to estate tax.


This article was written by a professional financial journalist for Legend Financial Advisors, Inc.® and is not intended as legal or investment advice.

  • Seven Steps To Protect Yourself After Data Breach
  • Dynasty Trusts: The Gift That Just Keeps On Giving
  • Getting A High Tax Grade For Higher Education Credits
  • How Social Earnings Taxation Has Changed
  • Why Aren't More Millennials Moving On Up And Out?
  • Taking Socially Responsible Investing To The Next Level
  • Don't Be Caught Red-Handed By The Wash Sale Rule
  • Leading Economic Indicators Hit 10-Year High
  • Avoid These 6 Mistakes In Stretch IRA Planning
  • More Flexibility Allowed In Flex Spending Accounts
  • Individual Bonds-Ugh!
  • Set Aside The Funds One Might Need For A Rainy Day
  • Protect Against Possible Terrorist Attack
  • U.S. Leading Economic Indicators Rose Again
  • Fed Chair Strikes A More Cautious Tone, But Still Expects Moderate Growth
  • Count Off 3 Tax Breaks For Higher Education
  • Don't Be Victimized By These 10 Common Scams
  • Retirement Plan Choices For The Self-Employed
  • New Law Says Tax Debtors May Lose Their Passports
  • Compare Minor's Account To 529 Plan
  • Are You Being Socially Responsible?
  • 8 Smart Moves For College Grads
  • Seeking Financial Aid: Don't Fear The FAFSA
  • New Baby? Consider An Education Savings Plan
  • 3 Ways To Deduct Mortgage Interest
  • Understanding Deflation
  • Don't Play Up Super Bowl Outcome In Stock Decisions
  • When Should Millennials Start Retirement Saving?
  • Have Your Child Kick Into A Roth With A Reward To Boot
  • Sizing Up The Energy Boost To The Economy
  • A Stock Plunge Amid Strong Economic Data
  • 14 Top Year-End Tax Moves For Individuals In 2014
  • Drill Down For Three Key Oil And Gas Tax Breaks
  • When It Pays To ID Security Sales
  • GDP Growth Data Masks Strength Of The Recovery
  • Be On The Lookout For Crimes Involving An Elder Fraud
  • S&P 500's New All Time High Wednesday Will Probably Continue Over Upcoming Months, But Other Indexes Are Struggling
  • U.S. Stock valuations are within the top 10 valuations of all time but probably won't crash. Why?
  • Seven Steps To Digging Your Way Out Of Deep Debt
  • 5 Steps To Protect The Digital Assets You Own
  • The Long-Term Fiscal Status Of The United States
  • Margin Debt At Record Levels
  • What To Do When You're Suddenly Widowed
  • A Common Error In Powers Of Attorney
  • Should You Move To A Different State?
  • Tax Cost Of Being Your Own Landlord
  • Why Do GRATs Remain In Such High Demand?
  • Don't Wait To Harvest Your Losses
  • The Best States To Move To For Tax Purposes
  • 10 Reasons For The IRS To Flag Your Return
  • Many Women Face Special Challenges As Retirement Nears
  • Nine Reasons To Consolidate Debt
  • Straight Talk About Living Trusts
  • SEPPs From An IRA: Don't Change Horses Midstream
  • New Regulations Fill In Gaps On 3.8% Surtax
  • Do You Know Life Insurance Basics?
  • Top Income-Earners Drive U.S. Economic Growth
  • Give IRA Cash To Charity: Heads You Win, Tails You Win
  • Four Wash Sale Strategies To Help Clean Up Taxes
  • College Savings: How Much Do You Need Each Month?
  • Surprising New Research: Large Caps Top Small Caps
  • Newly Widowed Face 401(k), IRA Options
  • Retirement Saving Takes Time And Must Be A Priority
  • Divide-Conquer To Convert To Roth IRA
  • What Is Probate And What Does It Protect?
  • A Research Surprise On Bond Funds
  • After New Tax Law, Do You Still Need A Bypass Trust?
  • Start Estate Planning For Your Child Now
  • Seven Tax Ideas To Use Throughout The Year
  • A Comprehensive Way To Plan For College Savings
  • Bulletproofing Your Will Before Death
  • IRS Mercy on 60-Day IRA Rollover Error
  • Feds Warn Of Life Settlement Dangers
  • Know The Tax Rules On Charitable Gift Deductions
  • IRS Ruling Boosts IDTs as Estate Planning Technique
  • A Defined Benefit Plan Lets You Sock Away Large Amounts If You Can Overcome Some Obstacles
  • Economic Shifts Bring New Pitfalls And Prizes
  • Evaluating Great Companies
  • Inflation Versus Deflation
  • Jeremy Grantham And Lou Stanasolovich Discuss Market Valuations
  • Ramifications Of A Weakening Dollar
  • Secular Versus Cyclical Bear Markets
  • Small Business And Work Opportunity Tax Act
  • Time To Plan For Estates, Wills, & Trusts

  • ©2018 Legend Financial Advisors, Inc.®. All rights reserved.