Here’s a scary statistic: 55% of self-employed Americans say they haven’t saved enough for retirement. Worse, 28% of all those freelancers and small business owners haven’t saved a penny!

This is a big part of the population, as self-employed workers hold three of every 10 U.S. jobs.

[ad#Google Adsense 336×280-IA]If you find yourself or your spouse in either camp, there is still hope – especially if you are in your mid-50s or 60s and making more than $250,000 a year.

There’s a little-known retirement plan option that might make sense for your situation.

And if it does, this unique plan could legally reduce your taxable income by more than $100,000 a year.

Most folks haven’t heard of it, but it’s called the defined-benefit pension plan.

An Overlooked Alternative

The personal defined-benefit pension plan is one of the most aggressive ways for high-earning, self-employed folks, like freelancers and small business owners, to save for retirement. Contributions within IRS limits are 100% tax deductible, and account holders enjoy tax-deferred growth on contributions.

A personal defined-benefit pension plan is very similar to a traditional pension plan, except you administer it yourself. It guarantees a set monthly payment in retirement, and you can then deduct contributions as a business expense.

These plans also allow you to shield a portion of your business’ wealth from creditors and frivolous lawsuits. Creditors cannot seize pension assets. So you can position your retirement plan as part of your business’ risk-mitigation strategy.

Enlisting the Right Help

But in order to start one of these unique plans, you’ll need to first enlist the help of an actuary. Many broker-dealers and law firms have dedicated teams of these number crunchers on staff. They will help you decide whether a defined-benefit pension plan is right for your retirement situation.

Next, you’ll select the amount of income you would like to receive during retirement. Today, the maximum amount of money a defined-benefit pension can dole out is the lesser of $210,000 or the participant’s average compensation for their highest three consecutive years. The IRS sets the limit each year.

Then, the actuary will determine how much you will need to contribute to the plan each year to meet your goal. The formula is complicated and is based on factors such as the benefit set, age and current income. Annual contribution levels are recalculated each year and will vary.

Do the Benefits Outweigh the Costs?

Of course, Uncle Sam doesn’t make it easy to stash such a large chunk of change in a tax-deferred account. The governmental regulations and the formulas used to govern personal defined-benefit pension plans are pretty complicated. The IRS does not provide much information regarding the plans on its website, so you have to hire a professional to navigate the nuances.

And they aren’t cheap, either.

A defined-benefit pension plan can cost thousands of dollars to set up and thousands each year just to administer. In fact, solo defined-benefit pension plans have some of the highest costs and expenses of any of the retirement savings options.

And the defined-benefit pension plan comes with its own set of unique risks. Once it’s established, you must make contributions every year until the plan is funded. If the plan underperforms, you must be able to cover the funding shortfall.

It can become a liability if you’re not careful. If you don’t have a stable, high annual income, a defined-benefit pension plan may not be worth it.

However, if you are self-employed, bringing in a quarter-million dollars and don’t need the liquidity, a defined-benefit pension plan is a retirement option worth considering. It could help turn a high-earning, self-employed procrastinator’s retirement nightmare into a retirement dream.

Good investing,



Source: Wealthy Retirement