The best-kept retirement secret for high-income earnersBy: James Alexander, CFP®, and Ed Meek, CFP®
May 16, 2023

You’ve got to be kidding me. Why didn’t my CPA tell me about this?

Frank, a health insurance broker, was miffed. Dave, his friend, found a way to defer over a hundred grand of his income – on top of what he was socking away for retirement in his 401(k).

Frank’s CPA had never mentioned the IRS-approved strategy, despite his repeated contestations about the government taking too much of his money. The tax burden is always the biggest burden on a business owner’s mind.

With a record-breaking year in sales – double what he had earned the previous year – Frank needed a tax shelter more than ever. “When you’re in the top 1%, nothing maddens you more than the idea of your hard-earned income being taxed. It took years to get to this place.”

As a CPA, you likely have had clients like Frank. Clients who grumble that they’re paying too much. Clients who ask you to do the impossible: “Can’t you shelter more of my money? Isn’t there more you can do?”

Of course, you point out the obvious strategies, like maxing out the IRA, and working IRS codes, like Section 179, which allows you to write off 90% of a vehicle for whoever is an employee of the business.

You find the loopholes for your client. But it still isn’t enough. There’s always a cap to tax deductions.

The solution

But there is one more strategy for high-income earners, that may be new to you: a Defined Benefit Plan.
It’s a retirement savings strategy that allows your high-income earning clients to sock away more, once they’ve maxed out their IRA, 401(k), or whatever else they’re doing. You’ll need to partner with an actuary to figure out how much they can save (it differs for each person). But you’d be shocked by how much they can put away and defer from taxation.

Here’s what you need to know about Defined Benefit Plans.
First, your client must qualify for this specialized IRS-approved retirement program. In short, the Defined Benefit Plan was designed for small business owners, consultants and independent contractors.

Second, your client needs to be in a position where they can put away a large percentage of their income for several years.

Your client can work with an investment advisor to identify the percentage of their current income they can comfortably afford to contribute to the plan, up to the maximum allowable amount. Currently, regulations set the maximum annual benefit at $265,000.

Of course, they can put away less than that.

The good news is that your client can customize their annual contribution, given the risk of how revenue can fluctuate in a small business. There are minimums that are required by the plan.

Defined Benefit Plans are actually flexible. In fact, participants have until you file their taxes to fund the plan for the previous year to modify your minimum and maximum. The latest deadline is Sept. 15 of the following year.

Annual contributions are calculated using formulas designed by an actuary, based on current age: the older the business owner, the larger the annual contribution needed to reach any specific benefit target because the owner will have fewer years to contribute.

Eligible compensation differs based on the type of business. With the Defined Benefit Plan, your planned retirement age is the date that you set for yourself for the plan. Not when you actually retire. Typically, the date is at least three years from the year the plan is adopted.

Of course, the shorter the horizon to retirement, the higher the annual contribution can be without exceeding the $265,000 limit. Conversely, a longer horizon results in a lower annual contribution limit.

The outcome

Since Frank began investing in a Defined Benefit Plan and ended up putting around $150,000 each year, he estimates he will be able to save $2MM in 10 years – tax sheltered!

“Elation” is the best word Frank has to describe the way he feels.

“Before I implemented the Defined Benefit Plan, I often had to come up with an additional $40,000 each year for taxes. This year, I’m actually getting a small refund from the IRS.”

Imagine providing that relief to your clients. And now imagine the clients coming your way from a strong referral.

For more information about Edge Financial Advisors and the Defined Benefit Plan, visit Or you may schedule a conversation to discuss your client’s needs at Calendly - James Alexander.

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penAbout James Alexander, CFP®, and Ed Meek, CFP®

Edge Financial Advisors is a Registered Investment Advisor whose mission is to help clients design and achieve the life they always wanted.

Ed Meek, CFP, and James Alexander, CFP, are Defined Benefit Plan experts. They understand what it means to pour your life into your small business or practice. And the urgency of doubling down to invest for retirement. Ed and James harness the power of the Defined Benefit Plan to accelerate your retirement savings. For more information visit, Or, you may schedule a conversation at Calendly - James Alexander.

Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.

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