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A Qualified Retirement Plan is an IRS-approved retirement savings structure that allows business owners to make large pre-tax contributions, reducing current taxable income while building tax-deferred wealth. Common types include 401(k) plans, Profit Sharing plans, and Defined Benefit plans. Contributions reduce your business income dollar for dollar, effectively converting tax liability into personal retirement wealth.

A Defined Benefit Plan can allow business owners to contribute significantly more than a 401(k) alone. Depending on your age and income, annual contributions can reach $100,000 or more per year on a pre-tax basis. Older business owners benefit most because the plan is designed to fund a specific retirement benefit, requiring larger contributions the closer you are to retirement age. At age 55 with high income, contributions can exceed $200,000 per year.

A 401(k) allows employee salary deferrals up to IRS annual limits plus catch-up contributions for those over 50. A Profit Sharing Plan allows the employer to contribute a percentage of profits for employees and owners, up to 25% of compensation. A Defined Benefit Plan is an employer-funded pension that promises a specific monthly benefit at retirement, allowing the largest pre-tax contributions of any plan type, often exceeding $100,000 per year for business owners. Many clients combine a 401(k) and Defined Benefit plan to maximize total contributions.

Yes. Defined Benefit Plans are available to businesses of any size including those with employees. However, the plan must provide benefits to all eligible employees, which affects the cost calculation. We analyze your employee count, compensation levels, and ages to determine whether a Defined Benefit Plan still delivers a strong net benefit to you as the owner after accounting for required employee contributions. For many businesses, the owner contribution still far exceeds the employee cost.

Contributions to a Qualified Retirement Plan are deducted directly from your business income, reducing your taxable income dollar for dollar. If you are in the 37% federal tax bracket, a $100,000 contribution saves you approximately $37,000 in federal taxes that year, while the full $100,000 continues to grow tax-deferred in your retirement account. This converts a current tax liability into long-term personal wealth.

Yes, and deadlines vary by plan type. Defined Benefit Plans generally must be established before the end of the business tax year to qualify for deductions in that year. 401(k) plans for new businesses must also typically be set up before year-end. We strongly recommend starting the discovery process at least 60 to 90 days before your year-end to allow enough time for proper plan design, documentation, and setup without rushing.