By John A. Wenstrup

No, it's not a new state-of-the-art sports car. It's better than that! The 412(i) plan is a proprietary, custom-designed defined benefit pension plan that can be used with any investment grade life insurance or annuity contract.

Always an agile vehicle for retirement funding, recent changes in tax law have made the 412(i) plan a far more powerful technique than IRAs, 401(k)s or a profit-sharing plans for a business owner to plan aggressively for retirement while enjoying large immediate income tax deductions.

The 412(i) plan is appropriate for a small business owner who would like to take advantage of tax deductions granted to defined benefit pension plans. The agility of the plan results from the fact that it is inexpensive to establish and maintain. Contributions to the plan are income tax-deductible to the company. The plan assets grow income tax-deferred and taxes are paid only when the benefits are distributed at retirement. While growing income tax-deferred, your plan assets are protected from the claims of your creditors. The power of the 412(i) comes from recently overhauled tax law that now permits you to contribute substantially more money to your 412(i) plan than to an IRA, 401(k) or profit-sharing plan.

Your plan benefits are fully guaranteed by the life insurance or annuity contract(s) owned by your plan. No Pension Benefit Guaranty Corporation (PBGC) insurance is required with a 412(i) plan. This further simplifies and reduces the cost of the plan.

The 412(i) plan contribution is determined by calculating how much retirement income you will need, then calculating the amount that you will be required to contribute annually to reach that income goal. The U.S. government allows you to fund for annual retirement income of up to $140,000 with the 412(i) Plan and permits a full income tax deduction for contributions made to the plan to meet that goal. Since 412(i) is governed by ERISA, your plan must include all employees that meet certain participation, integration and vesting requirements. The older you are and the more you earn, the more retirement income you can fund in your 412(i).

Your 412(i) plan is funded with retirement annuities or investment grade life insurance contracts. For example, indexed annuities or indexed life insurance contracts allow you, as the investor, to receive a guaranteed 2-4% interest on your account or 100% of the annual return of the S&P 500, whichever is greater. This arrangement protects your downside and gives you the potential for an equity upside. While your retirement benefits are calculated on the guaranteed part of the contract, the expectation is that the return on indexed contracts will generally exceed the guaranteed rate.

The documents required to prepare your 412(i) Plan are a census, an adoption agreement, a summary plan description, a plan trust instrument and an I.R.S. Tax Determination Letter. Legal fees required to start the 412(i) are around $5,500 plus a one-time IRS filing fee of $700; and an annual maintenance fee of around $1,200.

No, it's not a new state of the art sports car, but in the right situation 412(i) can take business owners farther and faster along your road to successful retirement. Itís worth a test drive!

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The Wealth Alliance does not provide tax or legal advice. Tax laws are subject to change.

513-248-9242

John A. Wenstrup is a Chartered Financial Consultant and president of The Wenstrup Company. John specializes in retirement, wealth transfer & business succession planning.

The 412(i) Plan is a legal pension trust instrument that must comply with the Internal Revenue Code as well as with all ERISA and Department of Labor regulations governing these plans. The plan document itself as well as the implementation and administration of the plan must be in strict compliance with these rules. It is important that you consult with a competent tax attorney in establishing and administering a 412(i) plan.

Annuities are not FDIC insured, not bank guaranteed an dmaylose value. All guarantees are based on the claoms paying ability of the issuing company.