More Tax Deductible $$$,$$$ for Your Retirement

LEGAL
Dennis Holcombe

A few months ago, I met with a top Network Marketing leader whose annual income was over $160,000. Although satisfied with her income, she envied her friends' hefty pensions and retirement packages.

Today's Defined Benefit Pension Plans, are perfect for sole proprietors and small business owners like her who want a guaranteed retirement income. Unlike a SEP (Simplified Employee Pension) or 401K, a Defined Benefit Pension Plan provides a predictable and secure benefit at retirement.

The premise is simple. You, as the beneficiary of this plan, "define" what you want your monthly pension income to be upon your retirement. Through actuarial calculations, you and your advisor then establish a yearly contribution amount which, upon being invested, supports the pension dollars you will receive each month.

Advantages of Defined Benefit Pension Plans

The tax benefit surpasses other plans for high-income earners. Depending on your age, your contribution can exceed $100,000, tax deferred, into a defined benefit plan each year-- as opposed to the maximum of $24,000 in a SEP.
For a Networker making $160,000 or more, an account could have a value of more than $1,500,000 at age 65.
Benefits are predictable and known in advance.
Benefits can be paid to the spouse upon the participant's death.
Such a plan can be terminated, if need be, and rolled into an IRA without penalties.
A "third party" administrator is necessary, which lessens your paper work and administrative duties.
Set-up takes approximately one month.
Investment strategies can be directed by either you or by a professional money manager.

Disadvantages of Defined Benefit Pension Plans

It is one of the most expensive pension/retirement plans to maintain.
You must make your pre-established contribution amount each year. If for some reason you cannot pay it, the IRS may impose substantial penalties.
If the plan administration isn't handled correctly, the IRS can disqualify it.
Your age of retirement is established in advance. It can be amended downward, but never upward.
If you have employees, you must contribute for them.
Because all plans are heavily regulated and there is always new pension legislation, you must periodically amend your plan to remain qualified.

Getting Started

These plans are complex, so work only with advisors who are Certified Pension Consultants or Enrolled Actuaries.
To find a plan administrator, ask for referrals from associates and friends who use a Defined Benefit Pension Plan.
Interview at least two or three administrators. How long has this individual been an administrator? Will they give references you can contact? How many hours of training do they attend each year?
Determine fee arrangements in advance. Some, like our firm, charge a flat fee, regardless of your contributions or the plan's performance. Others assess
a percentage of the investment, and/or of the returns. Firms charging significantly lower fees than others often carry secondary charges. Insist on full disclosure.

Defined Benefit Pension Plans aren't for everyone, but they are worth your consideration if you are in a higher income bracket, want to protect more of your money from current income tax, and want a predictable income at retirement.

Dennis Holcombe, CPC, CFP is the founder of Applied Financial Concepts, Inc., and has been a third party administrator for pension plans for more than 25 years. His Atlanta, GA based firm focuses on small business and high-income professionals. If you have questions, e-mail Dennis at dholcombe@afg-online.com or call Applied Financial Concepts, Inc. 1-800-298-9904. Information about the company is on the web at http://www.afg-online.com. © 1998 Applied Financial Concepts, Inc.

Reprinted with permission from Upline, Upline Legal - February 1999, 888-UPLINE-1, http://www.upline.com

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