Monday, January 30, 2012
If you are self-employed and you are a high earner, a personal pension plan might be a good option for you. You can end up retaining up to $2.5 million for retirement while getting a tax break. These pension plans make the most sense for big earners who are near 50 years old, earning $250,000 or more annually. And want to put more than $50,000 away for retirement each year. If you plan to put less than that away, then you might be better off using a standard IRA. Pension plans require that you contribute annually, while contributions to a 401(k) are voluntary.
Actuaries, pension consultants, and other third-party administrators can set up these accounts for you because there are a lot of rules and filing requirements that you have to comply with. You first figure out how much you want to pull out each year in retirement and then your annual contributions are based on that figure. Thos who set up the plan eventually roll the full amount into an IRA at retirement so that they can have flexibility to make withdrawals.
See Karen Blumenthal, Taking Your Pension Private, The Wall Street Journal, Jan. 28, 2012.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.