If you are feeling held back by the limits of what you are allowed to contribute to your 401(k) plan, all hope is not lost. A defined benefit plan may be an attractive addition to your retirement strategy.
For the year 2018, under a 401(k) plan, a participant may accumulate the lesser of:
- One hundred percent (100%) of their compensation, or
- $55,000 (plus an additional $6,000 in 401(k) catchup contributions for participants that have attained at least age 50 during 2018.)
With the addition of a defined benefit type plan, your contributions can be significantly higher and would allow for a much higher deferral of taxes due to the higher employer contributions.
These are some considerations when reviewing whether you are a good candidate for this type of plan:
- The amount you wish to contribute
- Your age in relation to your employees
- Your compensation level
- Your ability to make contributions for at least a few years. This is a long-term commitment.
- Your ownership of any other business with employees
A defined benefit plan is custom designed, based upon the facts of each case. An actuary determines each year what your required funding amount is based on the benefits you have established for the plan. Defined benefit plans are not for everybody and there are definitely costs associated with the additional benefits, but under the right circumstances, it may be very beneficial to you and your company.
Let us know if you are interested in looking into adding this type of plan to your retirement benefit lineup. Your Plan Consultant would be happy to work with you to determine if you are a good candidate, and if so, provide you with a proposal.