Corp defined benefit and defined contribution plans

I have a small C corporation and a defined contribution pension plan (money purchase and profit sharing plans). I'm always looking for additional means to shield any profits and fund the maximum (or at least more...) for my retirement. I'm wondering if I could additionally open and fund a defined benefit plan for year 2007.

Thanks. Walter

Reply to
Walter Cohen
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A Defined Benefit Plan is a GREAT option IF you have the means to continue to fund it. DB plans are subject to very different rules, some of which include mandatory funding (whether you have the cash or not) and the continuation of the plan into the future. You CANNOT open a DB plan and fund it sporadically. You MUST fund it based on actuarialy assumptions.

The best way I've found to to describe the funding requires is to compare the fund to the big lotteries. When you win the lottery you can take an annuity - a fixed check for a specified period - or you can take a lump sum. The lump sum is ALWAYS less than the annuity payout. The theory goes like this - how much money do you need to have set aside today to make regular payments of $X for Y years?

Defined benefits plans calculate the benefit - how much do you want to draw per month at what age for how many years? Once you know that, you can back into how much MUST be set aside, at given rates of return (somewhere near the 3% mark) so that when you start drawing against it you will be able to get a set check for a period of time.

Because the BENEFIT is defined, the contributions are also fixed and not easily changed.

DBs are GREAT - IF you have the resources to fund them.

Good luck, Gene E. Utterback, EA, RFC, ABA

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eagent

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