Sapers & Wallack

For small business owners, 412(e)(3) plans might be the answer for saving for retirement

Bill Sapers

By Bill Sapers

To ensure a financially secure retirement, everyone needs to design a successful retirement plan for themselves. Business owners are hardly an exception to this rule. Many owners possess a strong desire to retire comfortably. When you pair that desire with the power to decide which retirement plan is right, a business owner, particularly someone in business for themselves, can carefully evaluate all of their options in sponsoring a retirement plan and design it to meet their needs.

If you are 50 years or older and want to save a lot for retirement, and do so quickly, you have to examine your options now. What retirement plan is best for you and which plan will allow you to retire comfortably?
Traditionally, there are two types of retirement plans – defined contribution plan and a defined benefit plan. The shift these days has been towards defined contribution plans, but don’t count out a defined benefit plan just yet. Although defined contribution plans, such as 401(k) plans, are popular, contributions to these plans are limited, especially for business owners who have the means and desire to stow away higher amounts before taxes.

So why not a defined benefit plan?

A defined benefit plan requires than annual deductible contributions be mandatory — at least until the plan becomes fully funded. The 412(e)(3) plan, named after the section of the Internal Revenue Code that authorizes it, is a defined benefit plan that allows business owners to put away more earnings before taxes and because they use guaranteed insurance products. 412(e)(3) plans are exempt from PBGC insurance costs, actuarial costs and accounting charges that apply to traditional pension plans. In a 412(e)(3), the employer makes contributions, whether they be on their own benefit or their employees, which are 100% tax deductible.

If you are a business owner, here are a couple of reasons why 412(e)(3) plan might be right for meeting your personal retirement goal:

• A 412(e)(3) plan is exclusively funded by annuities or a combination of annuities and life-insurance contracts. Because of the insurance component, a 412(e)(3) can provide fixed, known monthly retirement benefits.

• A 412(e)(3) plan allows a business owner who is approaching retirement age to have large tax-deductible contributions could be excess of $250,000 that can build a substantial retirement fund in just a few years.

• Because the 412(e)(3) plan differs from traditional defined benefit plans such as a pension plan which is actuarially calculated to deliver the fixed amount at retirement, business owners simply funds the benefit through annuities, instead of contributing the annual amount that is determined by complicated actuarial calculations.

• A 412(e)(3) plan allows you great leverage to put in more money per year to fund your retirement than you would in a traditional pension plan.

As for costs to the business owner, you will see significant savings because you don’t have to pay for the actuary fees of a pension plan or pay annual fees to PBGC.

The 412(e)(3)  is one of the solutions that Sapers & Wallack offers to its clients. It is of course, not the solution for every business owner. The professionals at Sapers & Wallack strongly encourage you to engage in conversations about retirement options with your advisors to ensure that you have the right plan to fit your needs.

If you want to reap the tax benefits this year, you still have time to establish a 412(e)(3) plan before December 31st, 2010 and receive your deduction for the whole year. Sapers & Wallack is happy to set up a complimentary consultative meeting to speak with anyone who might be interested in exploring this option further between now and the end of the year. This is a great opportunity to get more tax deductions for your retirement savings.

Bill Sapers, Chairman of Sapers & Wallack, is a highly respected member of the insurance community, having served as Vice President and member of the Board of Trustees of the Association for Advanced Life Underwriting, Founding Member, Director and Treasurer of the Twenty-Five Million Dollar Forum, President of the New England Life Leaders Association, life and qualifying member of the Million Dollar Round Table, life member of Forum , member of the Boston Chapter of American CLU Society since 1954, and speaker before numerous associations and conferences. If you would like to contact Bill directly please call 617-225-2600 or email wsapers@sapers-wallack.com.

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