412(e)(3) Retirement Plans
Under current tax laws, a 412(e)(3) Plan affords Business Owners with the largest possible tax-deduction available for any retirement plan. It may be funded with annuities, life insurance or both. Participants have the ability to pre-tax the life insurance premiums to protect the spouse and family.
A 412(e)(3) is simple to set up and administer. It works best for the successful business with 5 or fewer employees and it even works for sole proprietors.
With stock market fluctuations and market turmoil of the last decade as a backdrop, a Business Owner can be reassured by knowing that a properly drafted 412(e)(3) Plan has little or no investment risk... funds are invested in fixed contracts with guaranteed values... the retirement benefit is guaranteed by a life insurance company, that is, by the insurer’s ability to pay.
An excellent scenario is a Business Owner wishing to maximize retirement plan contributions, has 5 or fewer employees, target ages are 45 and up, $100,000 or more in contributions, 5-year plus time horizon and have a profitable and steady business.
Business Owners may exclude:
- Employees under the age of 21
- Employees working less than 1,000 hours annually
- Union workers
Contribution levels can reach or even exceed W-2’s of Plan participants, depending on age.
Plan assets are protected from creditors.
