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What is a 412(i) Defined Benefit Pension Plan

The 412(i) plan is a special type of pension plan with three significant characteristics:

  1. Fully GUARANTEED Retirement Benefit
  2. Funded with fixed annuities or fixed annuity/life insurance combinations
  3. Generates largest possible tax deduction

Tax deductible 412(i) contributions not only provide funding for future retirement they also reduce current taxable income and increase tax deductions.

This is a tax qualified plan where all benefits are funded and guaranteed by individual level premium insurance company contracts.

A "fully insured" 412(i) plan represents an appealing solution that provides:

  • Simplicity
  • Maximum current tax-deductible Contributions
  • GUARANTEED retirement benefits

Advantages of a 412(i) Plan Over a Traditional Defined Benefit Plan

  • Not complex minimum funding requirements usually associated with qualified plans
  • Does not require an enrolled actuary
  • Sheltered from attack by the IRS because guarantees used as funding assumptions
  • Eliminate the potential of excess plan assets that would be subject to taxes and penalties that could exceed 80% upon termination of a traditional plan
  • Easy to understand the accrued benefit because it is simply the cash value of the contracts funding the account

How Deductible Contributions Compare to the Other Qualified Plans

Using a real example of a male age 60, interested in the maximum deduction available:

  1. Profit Sharing: $42,000 (2005 Contribution limit)
  2. Defined Benefit: $95,312
  3. 412(i) Plan: $253,446

Where a 412(i) Plan Works Best

While the 412(i) plan is simple, more importantly, it represents an excellent option for the small business owner or professional enterprise seeking to secure guaranteed retirement income while at the same time maximizing their current tax deduction.

  • Company Profile
    • Older owner of a small business
    • Wants large deductions
    • Few or no employees
  • Company Interests
    • Tax deductions for the business
    • Retirement benefits for owner/employees
  • Company Should
    • Provide a census data on the all the company employees
    • Allow us to do a feasibility analysis in order to determine the best plan design