Intro to Section 412 (e) (3)

A unique retirement option available to business owners is the fully insured defined benefit plan, also known as a Section 412(e)(3) plan. This plan, governed by the IRS code, stands out from traditional retirement plans due to its exclusive use of insurance and annuity contracts for funding. Unlike other defined benefit plans that rely on a variety of investment vehicles, the fully insured plan minimizes the risk of underfunding by guaranteeing the promised benefit through insurance. This makes it an appealing choice for older business owners who want a more secure retirement strategy.

One of the major advantages of a fully insured defined benefit plan is that it allows for significantly higher annual contributions compared to a 401(k). Business owners can contribute much more towards their retirement, helping them build a larger nest egg for their future. Additionally, contributions made to the plan are tax-deductible, providing immediate tax benefits for the business. These features make it an attractive option for business owners looking to maximize their retirement savings while also benefiting from tax advantages.

Unlike defined contribution plans, such as a 401(k), a fully insured defined benefit plan is a defined benefit plan, meaning the business owner knows exactly how much they will receive in retirement. This predictability offers peace of mind and helps business owners plan for their future with confidence. With guaranteed benefits and higher contribution limits, a fully insured defined benefit plan offers a compelling retirement solution for those looking to secure their financial future.

About Protego Advisers: 

We specialize in crafting strategic plans that help businesses minimize their overall tax liabilities while strictly adhering to legal standards. The U.S. tax system is one of the most intricate and historically complex financial frameworks in the world. Our expertise allows us to navigate this system on behalf of our clients, enabling them to retain more of their earnings with confidence and compliance.