Defined Benefits Retirement Plans

Written by Jacey Harmon
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Defined benefits retirement plans are pension funds operated and funded by employers. Defined benefits retirement plans are the only qualified retirement plan to offer a lifetime of guaranteed income for retirees. Defined benefits retirement plans may be attractive to prospective and current employees.

How Do Defined Benefits Retirement Plans Work?

Defined benefits retirement plans are solely funded by the employer on the employee's behalf. Contributions into defined benefits retirement plans grow tax deferred until withdrawn at retirement age. Once an eligible employee reaches retirement age they receive a guaranteed monthly income for life. If an employee cancels a plan, a lump sum settlement is available that can be rolled into an IRA account. Contributions into defined benefits retirement plans are a tax deductible expense.

Benefits of defined benefits retirement plans are calculated by considering a variety of different factors. Defined benefits retirement plans are rather complex and require the assistance of an experienced pension specialist. An employee's annual salary and length of service are considered when determining benefits. Life expectancy and age at retirement are other factors that are considered when determining benefits of defined benefits retirement plans.

Keogh plans are ideal defined benefits plans for the self employed professional or un-incorporated business. Any business that is classified as a sole proprietorship, partnership or limited liability company (L.L.C.) qualifies for use of Keogh plans. A qualified financial advisor will help determine if a defined benefits plan is right for you and your business.


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