A Sole-proprietor and Self Employed can set up a defined benefit plan and it would lead to significant tax savings while allowing for retirement savings at a much faster clip.
The single most important factor that goes into deciding the ideal retirement plan is the amount of money you want to contribute.
If you are looking to contribute more than $60,000 each year, a defined benefit plan is unarguably the best option for you. Please refer to the defined benefit plan section below.
If you expect to contribute more than $24,000 up to $60,000, a profit-sharing plan could be the best option for you assuming you are above the age of 50. Please refer to the profit-sharing plan section below.
If you are starting on saving for retirement and are looking to contribute less than $24,000 or are less than 50 years old, a solo 401(k) plan might be ideal for you. Please refer to the 401(k) plan section below.
If you are looking to contribute more than $60,000 each year, a defined benefit plan is unarguably the best option for you. Please refer to the defined benefit plan section below.
If you expect to contribute more than $24,000 up to $60,000, a profit-sharing plan could be the best option for you assuming you are above the age of 50. Please refer to the profit-sharing plan section below.
If you are starting on saving for retirement and are looking to contribute less than $24,000 or are less than 50 years old, a solo 401(k) plan might be ideal for you. Please refer to the 401(k) plan section below.
Who can set up a defined benefit plan?
A self-employed individual can set it up a defined benefit plan as long as there is significant money to contribute to the plan. Typical examples of self-employed individuals who set up a defined benefit plan are:
- Individual consultants who are self-employed
- People who have a small business and a full-time job
- Small business with only independent contractors
- A medical practice with a few part-time employees
- Real estate agents with their own agency
Eligibility criteria to start a defined benefit plan?
A defined benefit plan is an employer-sponsored pension plan, so this is typically set up by a business. All types of businesses can set it up, however, a prudent decision needs to be made based on the goals and the profitability of the business. Even self-employed individuals and sole-proprietors can start a defined benefit plan as long as the cost justifies the benefits earned.
If you are interested in learning more about DB plans, read our Comprehensive Guide for Defined Benefit Plans or Schedule a free consultancy today.
