A Timely Tax Tactic For Business Owners
To illustrate how it works, consider a dentist in her peak earnings years, with $500,000 of income. She's married and her children are out of the house. She is in the 35% federal tax bracket, biting deep into her income.
Defined benefit (DB) plans have been qualified under the federal tax code for special treatment for decades, but they are not nearly as popular as defined contribution (DC) plans.
Because your contribution is defined — but not your retirement benefit — DC plans pose less financial risk to employers and are much more popular with large companies. Guaranteeing a defined benefit on a retirement plan is riskier, so Uncle Sam imposes much higher contributions and more elaborate rules on a DB plan than on a DC plan.
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