Are you putting away enough money for your own personal retirement?
A 412(i) Defined Benefit plan is a qualified defined benefit retirement plan that is exempt from minimum funding requirements of traditional defined benefit plans. The plan defines the promised benefit that is to be paid to the participant upon retirement. The employer then makes contributions to the plan based on the present value of the promised future benefit.
In order to avoid minimum funding requirements, a 412(i) Defined Benefit plan must invest contributions in fixed annuity contracts or a combination of fixed annuities and fixed life insurance policies. The cash values guaranteed in these products provide the funding for retirement benefits. While inside the plan, assets grow tax deferred. 412 (i) plans are subject to many of the same benefit limitations as traditional defined benefit plans, however they also offer:
- Minimal oversight to implement compared to traditional defined benefit plans
- Maximum tax-deductible contributions compared to other qualified plans
- No stock market fluctuations – thus, no market risk to the plan sponsor
- Guaranteed retirement benefits
If a participant dies while the plan is still active, and life insurance is used for a portion of the funding, the participant’s beneficiaries receive the net death benefit income tax free—resulting in a self-completing benefit. The net death benefit is also available for estate liquidity and/or survivor needs.
As long as a life insurance policy remains in the 412(i) Defined Benefit plan, the participant will be taxed annually on the economic benefit.
Assets accumulated in a 412(i) plan (both annuities and/or life insurance) are protected from claims of personal and corporate creditors in the event of bankruptcy.
Are you aware of the recent tax law changes that affect the plans that you can implement in your office? At B&B our responsibility is to you, our clients, keeping you current with new market trends and helping you secure your future.