412 (i) Defined Benefit


412 (i) Defined Benefit Plans

What is a 412(i) Defined Benefit Plan? 

A 412(i) defined benefit pension plan, referred to in IRS regulations as an "insurance contract plan", is the only defined benefit plan that is exempt from the minimum funding requirements of Section 412 of the internal revenue code. This type of plan, therefore, enjoys certain advantages over the traditional defined benefit plan and should be explored if you are the owner of a small business or are self-employed. 

What are the advantages of a 412(i) insurance contract over a "traditional" defined benefit plan? 

1. larger initial contributions; 2. more stability in the contribution level; 3. a secure promise of future benefits guaranteed by the claims paying ability of an insurance company; 4. does not require an enrolled actuary, thus saving administrative costs; 5. is not subject to the full funding limitation tests of a defined benefit plan; 6. is required to use contract guarantees as funding assumptions, thus shielding them from IRS attacks as "unreasonable funding assumptions"; 7. provides benefits that are guaranteed by the claims paying ability of an insurance company, using fixed interest annuities and life insurance, rather than the financial strength of a particular employer providing the plan; 8. can be designed to eliminate the potential of excess plan assets that, in a traditional plan, would normally be subject to taxes and penalties of 80% or more upon termination of the plan; 9. Creditor protection; There are other advantages of the 412(i) plan, depending on the individuals and companies situation. The 9 shown are the main benefits. 

Who should consider this type of plan? 

This plan is ideal for small business owners who want to provide a sizeable contribution toward their retirement and would have the cash flow over the remaining years until they retire to do so. Most 412(i) plans are designed for self-employed business owners with no employees but also works with firms of less than 15 employees. It depends on how it is set up and the objectives of the owner. It is flexible by nature and fits most situations. The plan is advantageous for those who want to contribute over $ 40,000 per year into their retirement plan, are looking for guarantees and need to create a large income tax deduction. For a quote, please contact us at 719 738 6830 or toll free at 1-877 TESITOR. If you prefer, go to the "contact us" section and e mail us with your name and how we may contact you.

The retirement planning and tax information contained herein are general in nature, are provided for informational purposed only, and should not be considered legal or tax advice SCF Securities, Inc. (SCF) and its representatives do not provide tax or legal advice.  Please consult your tax or legal counsel for such guidance.   SCF cannot guarantee that such information is accurate, complete or timely.  Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information.  Federal and state laws and regulations are complex and are subject to change.  Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results.