Retirement benefit depends on level of contributions and investment returns.
Retirement benefit predefined. Contributions calculated each year to reach target.
Annual contribution is limited to $64,500 per person.
Annual contribution as high as $250,000+ each.
Contributions are discretionary.
Contribution generally required each year.
Employer contributions are limited to 25% of pay.
Employer contributions NOT limited to 25% of pay.
Assets may be in individual accounts or pooled.
Assets must be pooled.
Administration cost is generally lower, but a lower deduction is permitted.
Administration cost is generally higher, but a higher deduction may be allowed.
At a high level, Defined Benefit Plans allow for much higher contributions than Defined Contribution Plans. However, in a Defined Benefit Plan, contributions are not discretionary and administrative expenses tend to be higher than Defined Contribution Plans.
As someone who is self-employed, which type of retirement plan is right for you? In short, if you would like to make a tax deductible contribution of at least $60,000 per year, a Defined Benefit Plan is likely a better fit. Otherwise, with some exceptions, a Defined Contribution Plan will be a better option.
If you want to make large deductible contributions as a business owner, a Defined Benefit Plan is a great option. How much you can contribute will depend on your age and income level. Use the Defined Benefit Plan calculator to find out!