WP Stevenson & Companies

The Ideal Candidate for a 412(i) plan is generally a self employed person in their late 50's or early 60's with few employees that are significantly younger, and has a great need to save in a short period of time for his/her retirement.

The 412 i plan is a defined benefit plan which means that there is a set or defined benefit that will be achieved and received at a certain point in time, say for example age 65.

Because we know what the benefit will be, we can therefore extrapolate how much money one must contribute annually to achieve this goal.

The annual tax deductible contributions can be significant and can often exist in the presence of other tax qualified plans like a 401(k). Generally the largest tax deductible contributions will occur in the first year of the plan as surplus dividends and values above stated guarantees may serve to reduce future contributions toward the goal.

Now for the tricky part. According to IRS guidelines, what an employer does for himself, he must also do for his/her eligible employees. This is often the straw that breaks the back of the 412(i) for many people considering its use.

The key here is few employees, and significantly younger in age. If the aforementioned exists, the contributions will be much smaller to any employees than they would be for the employer and make the plan viable. If the other employees are too senior in age, the employer may find it undesirable to give an employee a contribution equal to that of his own, especially if the true goal of the arrangement is self serving for the employer's retirement desires. If all the cards fall in place just right however, a 412(i) plan can be an unbeatable retirement an tax savings vehicle.