What is a Defined Benefit plan?
Defined Benefit plans have been around for decades. In years past, large corporations used to fund Defined Benefit plans to pay for their employees' retirement. A company would contribute a certain amount each year to a plan during an employee's working years to build up the plan to a point that it would be able to pay a set (defined) benefit to that employee during each year of his/her retirement. Today the maximum annual benefit that a Defined Benefit plan can target to be distributed annually as a 'benefit' to an employee in retirement is $210,000. Thus, in order to be able to distribute $210,000 annually on an ongoing basis, the plan must have much more in assets than that. Today the IRS limit on how big a Defined Benefit plan can grow is $2.5 million. Learn more about Defined Benefit plans here, on the Internal Revenue Service (IRS) website.
**With our process, a locum tenens physician is essentially both the company (that funds the Defined Benefit plan with tax-deductible contributions) and the ultimate owner and beneficiary of the plan assets in retirement.**
Defined Benefit plans do not work for everyone; in fact they are often overlooked as a tax savings and retirement building tool because so few people meet the qualifications. Locum tenens physicians, however, are great candidates for DB plans because of the nature of their work and employment.
The best candidates for DB plans are high-income professionals who:
- Have self-employment income (1099 and/or W-2) from:
- A sole proprietorship or LLC, or
- A C-Corp or S-Corp with 0-10 employees, or
- Have side income from freelance work
- Are 40 years of age or older
- Earn at least $100,000 annually
- Are willing and able to contribute more than $50,000 per year to a DB plan for at least 3 consecutive years
Typical Plan Owners Include:
- Empoyees who also receive self-employment income from a side business
- Independent contractors -- such as many locum tenens physicians -- consultants, professionals and sales reps
- Business owners with up to 10 employees
- Self-employeed spouses of high income earners
If you would like to further discuss the qualifications or DB plans in general, we are happy to help. Contact Us here.
If you would like to find out if a Defined Benefit plan can help you to cut your tax bill while boosting your retirement savings, take just one minute to fill out our quick Tax Savings Analysis Tool and we will generate a complimentary tax savings proposal for you. No strings attached.