This page allows you to calculate the range of allowable contributions to a conventional defined benefit pension plan for an individual, in the first year of the plan, given certain key pieces of information:
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Current age
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Annual compensation (or earned income for a sole proprietor)
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Retirement age
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Years of past service in this business
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Year the plan is effective (affects IRS Dollar limits)
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Sole Proprietorship - the maximum deduction is limited to 100% of earned income.
The program will calculate a range of allowable contributions. Under the Pension Protection Act of 2006, the plan will have a MINIMUM REQUIRED contribution, a MAXIMUM DEDUCTIBLE contribution, and a RECOMMENDED contribution that will lie somewhere in between.
The calculation assumes a NEW PLAN in the first year of operation. In subsequent years, the range of allowable contributions may change slightly due to a number of factors, such as investment performance, change in pay, and changes in legal benefit limits.
Actuarial Hints:
(1) If you want to contribute MORE than the maximum shown, try using a Retirement Age of EXACTLY 10 years more than Current Age. This usually resutls in the highest possible deduction. (But beware - IRS can challenge a Retirement Age less than 55. And if the Current Age is 60 or more, the Retirement Age can't be more than 5 years later.)
Or, try using more Compensation. According to IRS Dollar Limits, the maximum benefit that we can fund in a defined benefit pension plan is currently
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$195,000 for plan years beginning in 2011
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$200,000 for plan years beginning in 2012
(2) Make sure the Current Age you enter is LESS than the Retirement Age you enter.
If you have any questions after performing your retirement savings estimate, call us here at ALI Actuarial & Retirement Plan Services, by phone at 919-357-2267, or by email to bmarotta@aliactuary.com.