Risks & Rewards
Risks

The following are some of the risks which may apply:

If you do not have enough cash to make the required contribution on time, there may be penalties and excise taxes due
If you decide to change the plan provisions or freeze benefits to the plan, there is additional administrative expense involved
If the assets in the plan accumulate too quickly and will provide more benefit than your benefit formula specifies, there may be a 50% excise tax on the surplus. db65.com plans on researching this area in more detail. This risk can be minimized by careful design and ongoing controls
The Internal Revenue Service (IRS) may request an audit of your pension plan. This increases plan administration fees
The Department of Labor (DOL) may request an audit of your pension plan.This increases plan administration fees
Federal regulations in the future may change and render this plan less advantageous. Odds are that future rule changes would be prospective not retroactive
If you need to take money out of the pension plan before you retire or before age 55 or 59 1/2, there may be an IRS penalty due or the plan may need to be amended
No loans will be allowed. This is a db65.com standard
A plan termination may be involved which would add extra expenses, especially if an IRS determination letter is requested
If Self-Employed Net Earnings (SENE) in a given year is less than the required contribution, then it is possible that some required contributions will not be tax deductible. db65.com intends on researching this area in more detail

Rewards

Large potential for quick asset accumulations, not available elsewhere.
Large federal tax deductible contributions are available and in most cases are SIGNIFICANTLY greater than other pension/savings plans available to the self employed e.g. SEP, SIMPLE, IRA or Keogh dc Pension Plans. State law governs the tax deductions to income for contributions on your state tax return. Massachusetts does not give tax deductions to income for contributions, but does allow tax-deferred investment gains.
Your after tax rate of return due to tax refunds can be significant. See illustrations.
The ability to "catch-up" on contributions you have not made prior to the plan creation is unique to db pension plans. This is something that a dc plan can not match.

Personal Contribution Estimate

P.O. Box 2707,
Framingham, MA 01703-2707
E-mail: office@db65.com
Toll Free Voice Mail: (877) 253-7449
Fax (877) 253-7449

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