By Are you a high-income solo business owner seeking to supercharge your retirement savings while cutting your tax bill? If so, there’s a powerful tool that may surprise you: the defined benefit plan.
Often associated with large corporations or government jobs, defined benefit plans can also be a strategic solution for self-employed professionals and sole owners of corporations—especially those professionals and owners nearing retirement and earning steady six- or seven-figure incomes. Unlike SEP IRAs or solo 401(k)s, which cap your annual contributions, a defined benefit plan allows much larger, tax-deductible contributions based on your desired retirement benefit.
Why Consider a Defined Benefit Plan?
This plan could be ideal for you if you’re
- age 50 or older;
- earning consistent, high income;
- interested in contributing more than $70,000 annually; and
- willing to commit to multi-year contributions.
For instance, someone earning $1 million per year might contribute $300,000 annually—potentially saving over $100,000 in federal taxes.
How It Works
An actuary determines your annual contribution based on your age, income, and retirement timeline. For 2025, the IRS allows the following:
- Funding of up to $280,000 per year in retirement benefits
- Up to $3.5 million in total plan accumulation
- Contributions based on compensation up to $350,000
This makes the defined benefit plan one of the most robust retirement and tax-deferral vehicles available.
Important Considerations
Defined benefit plans require setup and maintenance costs, including annual actuarial evaluations and filings. Expect to invest $1,000–$4,000 annually for administration. Funds are generally locked until retirement, and early withdrawals are subject to penalties.
However, the long-term benefits can be substantial, both for your future retirement security and for your current tax position.
If you would like to discuss the defined benefit plan, please call me directly at 408-778-9651.