Tax Advantages of Setting Up a One Person Pension Plan

Article Excerpt:

High income self-employed individuals or corporation owners can save thousands of dollars on income taxes every year by setting up their own pension plan. These plans allow taxes to be avoided on a substantial amount of income – in certain situations up to $3.5 million over a working career – by exchanging pre-tax income into a qualified private pension plan.

Typical defined contribution plans, i.e., 401(k) and profit sharing, limit the tax deduction to approximately $50,000 per year. Instead, a one person tax-deductible pension plan contribution can be much larger than the maximum 401(k) plan deduction. In certain situations, contribution amounts can reach up to $200,000. In recent years, the cost of pension plan administration services has become more affordable, so these types of retirement plans have increased in popularity especially for one-person businesses.