National Pensions - CPA Oriented


Senior Pension Consultants

412(e)(3) Pension

Many professionals and business people find that a 412(e)(3) retirement plan is an ideal solution for their needs. Whether for one principal or for large groups, the basic 412(e)(3) plan design is the same. Plans are often designed to meet the needs of senior principals, but allow each principal to tailor benefits and contributions to his own situation.

The form of the business does not affect the effectiveness of the 412(e)(3) retirement solution. A 412(e)(3) works equally well in a sole proprietorship, a partnership, a corporation (including personal service corporations), or a corporation that elects to be taxed as an S-Corporation. A controlled group of businesses or an affiliated service group can have a 412(e)(3) plan.

To provide for his own retirement, the principal owner must accumulate a fund. A 412(e)(3) plan allows for faster accumulation of a retirement fund than any alternative qualified retirement plan. In 2010, a retiree age 65 with ten years of plan participation can take a distribution worth as much as $2,000,000. To accumulate $2,000,000 in ten years in a traditional defined benefit plan, assuming a five percent annual return, the annual contribution needs to be at least $150,000. The first-year contributions for a 44-year-old in a 412(e)(3) plan with a $2,000,000 funding target may exceed $200,000. That's over four times the 2010 defined contribution plan maximum of $49,000.

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