Personal Defined Benefit Plan

Related Questions

Have questions about our Personal Defined Benefit Plan? Here are responses to some of the most common questions we hear. If you have a specific question that's not answered here, please call us at 800-435-4000.

How do I establish a plan and how long will it take?

This plan can take up to three months to set up, so you’ll want to start early. The first step is to complete a complimentary Funding Proposal Worksheet. Schwab must receive the form by November 15 in order to establish a plan effective for the current year.

Call us at 800-435-4000 anytime for assistance.

Who is a Personal Defined Benefit Plan for?

A Personal Defined Benefit Plan may be best for professionals age 50 or over who can make annual contributions of $90,000 or more for at least five years and who have few, if any, employees. It's for people who are looking for a quick way to increase their retirement assets, most likely highly compensated business owners, partners, and key employees who are in their peak earning years.

What are the tax advantages of a Personal Defined Benefit Plan?

Contributions are generally 100% tax-deductible, within IRS limits. Earnings grow tax-deferred and are taxable when withdrawn.

What are the contribution limits?

A Personal Defined Benefit Plan is funded with employer contributions only and must be funded annually. Annual contribution levels are calculated based on several factors, including age, compensation, and retirement age. If you have employees, you must contribute for all eligible employees.³ Plan contributions are adjusted each year and may be amended (for additional fees) if the desired contribution level needs to be revised.

When should I establish and fund my Personal Defined Benefit Plan?

The plan must be opened by the end of your business's fiscal year (usually December 31) in order to make contributions for that tax year. To open your plan by year-end, make sure you complete and submit your Funding Proposal Worksheet by November 15. For plans with a January 1 through December 31 plan year, contributions must be made before you file your business's tax return for the year, but not later than September 15 of the following year.

What do I need to know about administering a Personal Defined Benefit Plan?

While Personal Defined Benefit Plans have some of the highest contribution limits, there are also substantial costs and administrative requirements based on the terms of your plan, including annual actuarial calculations, required annual funding, and filing fees for IRS Form 5500.

What are the rules for making withdrawals from a Personal Defined Benefit Plan?

Penalty-free distributions may be received upon retirement or termination of service. Required Minimum Distribution (RMD) withdrawals must begin by age 73, even if you are still working. You may receive your benefit payout by rolling assets into an IRA, setting up an annuity, or receiving a lump-sum distribution. If you don't start RMDs when required or take less than the required amount, you will face a penalty.

If you don't make withdrawals, you'll be subject to pay a penalty.

The new SECURE 2.0 reduces the 50% penalty for missing an RMD effective for RMDs in 2023, it does not impact missed RMDs in 2022.  Under SECURE 2.0 if you don't take your RMD by the IRS deadline, a 25% excise tax on insufficient or late RMD withdrawals applies. If the RMD is corrected timely, the penalty can be reduced down to 10%. Follow the IRS guidelines and consult your tax advisor.

There are certain circumstances in which you may be eligible to withdraw funds before age 59½ without taking a 10% penalty, including:

• Rollover of distributions to another IRA or employer plan
• Termination of employment at or after age 55
• Death or disability
• Qualified birth or adoption expenses
• Non-reimbursed medical expenses exceeding 7.5% of adjusted gross income
• Withdrawals made in equal installments over the account holder’s life expectancy