“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 benefits (D plans 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 plans. However, because there requirements to fund the plan for employees in a non-discriminatory manner, the required contributions to a DB plan to fund for the employee can be prohibitively expensive.

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 higher 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 1-800-490-8200 or sign up for a free consultation or write your questions, and we’ll get back to you soon.