Wealth Advisory Associates | “Carve-Out” Defined Benefit Plans

“Carve-Out” Defined Benefit Plans

“Carve-out” planning seems to be the next generation of planning to help small business owners create plans to skew the contribution amounts to key employees.

A “carve-out” plan is fairly easy to understand.

Defined Benefit (DB) Pans are unique qualified retirement plans that allow owner/employees to put away significantly more money into a retirement plan than a 401(k) Profit Sharing Plan. However, because there requirements to fund the plan for employees in a non-discriminatory manner, the required contributions to a DB plan can be prohibitively expensive to fund for the employees.

That’s where a “carve-out” plan might come in handy. All you do to make the plan more economically viable is place the older more highly-compensated non-owner employees in a 401(k)/Profit Sharing Plan (where required contributions for the employees will be low) and the owner and the younger less compensated employees in the DB plan.

The name “carve-out” make sense because you are carving out the older highly-compensated employees from the DB plan and moving them into the 401(k)/profit sharing plan.

If you are interested in putting the maximum away for yourself as a business owner and the minimum amount away for your staff, you should consider using a “carve-out” plan to accomplish this goal. To learn more, call 727-588-1540 or sign up for a free consultation or write your questions, and we’ll get back to you soon.