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 $67,500 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.
Defined Benefit Plans may allow for much higher contributions than Defined Contribution Plans, such as 401(k) Plans. However, in a Defined Benefit Plan, contributions are not discretionary, and administration tends to cost more than Defined Contribution Plans.
As someone who is self-employed, which type of retirement plan is best? In short, if you would like a tax-deductible contribution of at least $60,000 per year, a Defined Benefit Plan is likely a better fit. Otherwise, a Defined Contribution Plan, such as a 401(k) Plan, generally will be a better option.
If you want to make large deductible contributions as a business owner, a Defined Benefit Plan may be a better option than a Defined Contribution Plan, such as a 401(k) Plan. How much you can contribute will depend on your age and income level. Use the Defined Benefit Plan calculator to find out!