Frequently Asked Questions

It is our name for a qualified retirement plan designed around the owner: usually a cash balance or defined benefit pension paired with a 401(k) profit-sharing plan. Our actuary weights the design so the owner and key people receive most of the contribution, while employees receive a compliant benefit that vests as they stay. The business deducts the contribution.

Cash balance plans guide

It depends on your age, compensation, entity type and staff. Combined designs routinely allow six-figure deductible contributions for owners in their 40s, 50s and 60s, and the top end runs to $300,000 or more a year, far beyond 401(k) limits alone. The questionnaire returns a projection built on your actual numbers rather than a generic range.

Contribution limits

Employer contributions to a qualified plan are deductible to the business within the limits of IRC section 404, and the actuarial design keeps you inside those limits. The deduction reduces taxable business income for the plan year, and the contribution can be made as late as your tax-filing deadline, including extensions. Growth inside the plan is tax-deferred until it is paid out.

How the deduction works

Usually not. A new plan can generally be adopted and funded up to the business's tax-filing deadline for that year, including extensions. Design, documents and funding still take a few weeks, so the earlier you start, the more room you have to fund it fully.

Plan deadlines

Fees depend on the design and the number of participants; our pricing is published rather than quoted case by case. Because the deduction is measured in tens or hundreds of thousands of dollars and the fees in thousands, the tax savings usually outweigh the administration cost by a wide margin.

Pricing & design

Your answers go straight to plan design, not to a call center. Our actuary reviews them and you receive a personalized illustration by email showing the contribution, the deduction and the split between owners and staff. There is no obligation, and we never sell your data.

Our process

For an S-Corporation, employer contributions to a pension plan are generally deducted on Form 1120-S, Line 17 (Pension, profit-sharing, etc. plans). The deduction flows through to your personal return via Schedule K-1, reducing your ordinary business income.

Because S-Corp owners split their income between W-2 wages and K-1 distributions to manage FICA/Medicare taxes, aggressive pension contributions can further reduce the overall base of taxable profits, providing significant downstream tax relief without triggering higher payroll taxes.

As a Sole Proprietor (or single-member LLC), your personal pension contributions are typically reported on Schedule 1 (Form 1040), Part II, on the 'Self-employed SEP, SIMPLE, and qualified plans' line (line 16 on recent form years). They directly reduce your Adjusted Gross Income (AGI).

No. Your pension contribution reduces your income tax liability, but it does not lower your net earnings from self-employment calculated on Schedule SE. You still pay SE tax on your net business income prior to the retirement deduction.

For a Partnership, contributions made on behalf of the partners are generally reported on Schedule K-1 (Form 1065) in Box 13 with code 'R'. The partner then reports this deduction on their personal Form 1040, Schedule 1, on the self-employed qualified-plans line (line 16 on recent form years).

Yes. By utilizing a Cash Balance Plan or targeted defined benefit design, actuaries can often structure the plan so different partners receive different contribution levels based on age, compensation, and ownership percentage.

If you are a high-income W-2 employee (e.g., a corporate executive or senior professional), your pre-tax pension contributions are typically deducted automatically from your paycheck. The deduction is reflected in Box 12 of your W-2 (often with a code like 'D' for a 401k). You do not manually write this off on your 1040—your taxable wages in Box 1 are simply lower.

If all your income is purely W-2 from an employer who doesn't offer one, no. However, if you have any 1099 side income (consulting, board work, or freelance projects), you can establish a plan based on that self-employed income.

Employees must benefit, but they do not have to benefit equally. Cross-tested designs let owners and key people take the bulk of the contribution while staff receive a defined slice of pay, commonly 5% to 7.5% once the safe-harbor and profit-sharing pieces are combined. In our orthodontic case study, 92% of the plan's funding went to the owners.

Cash balance plans with employees

Contributions can vest over a schedule of up to six years (or three years with a cliff). An employee who leaves early forfeits the unvested balance back to the plan; one who stays walks away with all of it. That turns the benefit into a reason to stay, and a pension is a benefit most competing small employers, and many large ones, no longer offer.

No on both counts. Plans can set age and service minimums for eligibility, and class-based allocations can give different percentages to different groups, such as owners, associates and staff, all inside IRS nondiscrimination testing on your real census.

Less than the headline number. The staff contribution is a deductible business expense, so in a 40%-plus bracket its after-tax cost is roughly half. Forfeitures from employees who leave before vesting come back to the plan and offset future contributions. The illustration you receive shows the split for your census.

Yes. A qualified plan may hold permanent life insurance on participants as an incidental benefit. The business contributes to the plan and deducts the contribution; the plan trust pays the premium out of those pre-tax dollars. IRS incidental-benefit rules cap the coverage: premiums for whole life generally must stay below 50% of a participant's contributions, and universal life or term below 25%.

Life insurance & wealth strategies

The business deducts the plan contribution that funds the premium, so the policy is bought with pre-tax profit rather than after-tax personal income. The insured participant reports a small amount each year, the economic-benefit cost of the pure insurance under IRS Table 2001, as taxable income. The death benefit above the policy's cash value generally passes to beneficiaries income-tax-free.

A defined benefit plan funded entirely by guaranteed annuity and whole life contracts. Because the carrier guarantees the funding, the plan is exempt from the minimum funding standards and typically produces the largest deductible contribution available for a given benefit.

412(e)(3) fully insured plans

The policy belongs to the plan trust while it is in force. At retirement or plan termination it can be distributed to you (the cash value is taxable at that point, less the Table 2001 costs you already reported), purchased from the plan for its fair value, or surrendered so the cash value pays your retirement benefit. The right exit is planned in advance with the actuary.

Often, yes. My Pension Tree is an independent firm, not a captive agency tied to a single carrier, so a decline from one company is not the final word. Carriers underwrite the same health history differently, and some offer simplified-issue or guaranteed-issue products, graded death benefits, or specialty programs for conditions others decline. Approval is never guaranteed, but the case can be shopped rather than closed.

Talk with our team

A permanent life insurance policy whose cash value earns interest credited from the movement of a market index, typically with a 0% floor against losses and a cap or participation rate on gains. Premiums are flexible within limits. Costs, caps and floors vary by carrier and change over time, so an IUL should be compared on a current illustration, not a brochure.

A captive agent can only offer one company's products and one company's underwriting. An independent firm can match your health history, age and goals to the carrier most likely to approve the case on the best terms, and can move to another carrier if the first one declines.

Sometimes, but it is not the default. Universal-life policies inside a qualified plan fall under the stricter 25% incidental-benefit limit, so many owners hold an IUL personally and use the plan for whole life or guaranteed annuity contracts. The design review looks at both placements before anything is applied for.