My CFP friend has a client, an author, with no employees. His income (net Schedule C - ½ SE) is consistently about $300,000 per year. “He’d like to contribute $100,000 per year,” my friend says. “But he’s only 38 years old, too young for a defined benefit plan. What can he do?”
My friend remembers a time when DB plans were for older business owners, but now 38 is not too young. For this particular client, we designed a plan with a required minimum contribution of about $75,000 and a maximum deductible contribution of about $180,000. It’s a perfect fit!
Even if this client had been in his 20s, we could have designed an appropriate plan, using the DB plan plus a 401(k) plan. For those clients who want to contribute more than the defined contribution limit of $55,000, it’s worth looking at a defined benefit plan.
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