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 who earn 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;

• consistently earns a 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 and contributing $300,000 annually can save 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, as well as ongoing administration. Expect to invest $1,000 to $4,000 annually in 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.