Small Businesses get a big break by maximizing profits with defined benefit plans.
Generally many small business owners face a dilemma when it comes to making important decisions concerning their IRA’s and 401K’s during the open enrollment time of the year.
Many small business owners don’t realize that a defined benefit plans allow higher contributions compared to traditional plans. For example a traditional IRA has a contribution limit of $4500.00 and a 401K plan only allows a contribution limit of $20,500 in the year 2007.
While a defined benefit plan can allow workers to contribute up to 100% of their salary depending upon their age and salary.
Charles Schwab rolled out a defined benefit plan a few years ago, in which investors put up to $150,000 annually. These small scale plans are targeted at small business owners with 1 to 5 employees. The greatest advantage is that these plans allow business owners to set aside larger sums for retirement while still diminishing their tax burdens.
The most appealing benefit for these entrepreneurs is the fact that a worker can still participate in a 401K plan. While having the ability to supercharge retirement savings helps explain the growing popularity of these plans. Both employees and owners who haven’t saved enough for retirement really have a chance to “catch up” and make a significant progress towards a well financed retirement.
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