Key Differences Defined Benefit Plans vs. Defined Contribution Plans
Defined Benefit Plans:
- Larger contributions allowed on behalf of the business owner with corresponding large deductions.
- Business funds contributions on behalf of employees.
- Contributions generally are required each year.
Defined Benefit Plans Are Designed For:
Stable, well-established business or professional practice. The defined benefit can provide more substantial retirement benefits and greater tax deductions than any other types of plans. These are usually favored by older or very highly compensated owners.
Defined Contribution Plans:
- Limited contributions on behalf of business owner.
- Plans can be funded by the business owners, employees or both.
- Annual contributions generally not required.
Defined Contribution Plans Are Designed For:
Businesses or professional practices with a history of fluctuating profits, or you do not wish to commit to a fixed annual contribution schedule.