Hidden Advantages of the Defined Benefit Plan

Retire Better: The Hidden Advantages of the Defined Benefit Plan

Are you a high-income solo business owner seeking to supercharge your retirement savings while cutting your tax bill? If so, there’s a powerful tool that may surprise you: the defined benefit plan.

Often associated with large corporations or government jobs, defined benefit plans can also be a strategic solution for self-employed professionals and sole owners of corporations—especially those professionals and owners nearing retirement and earning steady six- or seven-figure incomes.

Unlike SEP IRAs or solo 401(k)s, which cap your annual contributions, a defined benefit plan allows much larger, tax-deductible contributions based on your desired retirement benefit.

Why Consider a Defined Benefit Plan?

This plan could be ideal for you if you’re:

age 50 or older;
earning consistent, high income;
interested in contributing more than $70,000 annually; and
willing to commit to multi-year contributions.

For instance, someone earning $1 million per year might contribute $300,000 annually—potentially saving over $100,000 in federal taxes.

How It Works

An actuary determines your annual contribution based on your age, income, and retirement timeline. For 2025, the IRS allows the following:

Funding of up to $280,000 per year in retirement benefits
Up to $3.5 million in total plan accumulation
Contributions based on compensation up to $350,000

This makes the defined benefit plan one of the most robust retirement and tax-deferral vehicles available.

Important Considerations

Defined benefit plans require setup and maintenance costs, including annual actuarial evaluations and filings. Expect to invest $1,000–$4,000 annually for administration. Funds are generally locked until retirement, and early withdrawals are subject to penalties. However, the long-term benefits can be substantial, both for your future retirement security and for your current tax position.