How Business Owners Can Use a Defined Benefit Plan to Slash Taxes and Build Wealth in 2025

Defined Benefit Plans: A Smart Way for Business Owners to Save on Taxes

If you're a business owner looking to save on taxes while building a strong retirement, there’s one powerful tool you may not know about—a defined benefit plan.

It sounds complicated, but it’s really not. Think of it as a supercharged retirement plan that can help you:

• Save thousands in taxes each year
• Build a large retirement fund
• Offer a great benefit to key employees

Let’s break it down in a simple way so you can see how this plan works—and how it could help your business.

What Is a Defined Benefit Plan?

A defined benefit plan is a type of retirement plan that promises a set amount of money every month when you retire. It’s like the old-school pensions your grandparents may have had.

But here’s the cool part: if you own a business (even a small one), you can create your own defined benefit plan and put away a lot more money than a regular 401(k).

This means more retirement savings and big tax deductions for your business.

Who Can Use a Defined Benefit Plan?

Almost anyone who owns a business can use one. This includes:

• Sole proprietors
• Partnerships
• LLCs
• S-corporations
• Even self-employed professionals like doctors, consultants, and freelancers

You don’t need to have employees to open a plan. In fact, many defined benefit plans are for one-person businesses.

Why Use a Defined Benefit Plan?

Here’s why smart business owners love these plans:

1. Huge Tax Deductions

You can put away much more than in a 401(k). In 2025, a 401(k) lets you contribute up to $69,000 (if over age 50 with catch-up). But a defined benefit plan? You could contribute over $100,000 to $300,000—depending on your age and income.

And all of that is tax-deductible. That means you lower your income and pay less to the IRS.

2. Fast Retirement Savings

Let’s say you’re 50 and want to retire in 10–15 years. A defined benefit plan can help you catch up quickly because you’re allowed to put in larger amounts than other plans.

3. Great for High-Income Years

If you have a good year and want to reduce your taxable income, this plan can help you move that income into retirement savings—instead of taxes.

4. Boosts Your Employee Benefits

If you do have staff, a defined benefit plan can be a great tool to attract and keep good employees. It shows you're investing in their future.

How Does the Plan Work?

Let’s look at a simple example:

Meet Sarah, age 55, and she owns her own consulting business. She makes $250,000 a year.

With a defined benefit plan, Sarah can contribute around $150,000 per year into the plan.

• She gets a huge tax deduction
• Her money grows tax-deferred
• She builds a strong retirement account in just 10 years

And if Sarah wants, she can also add a 401(k) or profit-sharing plan on top of the defined benefit plan to save even more.

Are There Any Rules?

Yes, there are some rules to follow:

• You must commit to funding the plan each year (at least for a few years)
• You must work with an actuary (a special expert who calculates how much you can contribute)
• The plan must follow IRS rules to stay in good standing
• If you have employees, you may have to offer them benefits too (but this can be designed smartly)

But don’t worry—your CPA or financial advisor can help set it all up.

Is It Better Than a 401(k)?

It depends on your goals.

If you’re earning a lot and want to save fast, the defined benefit plan wins.

But some business owners use both plans to get the best of both worlds.

What Are the Risks?

While these plans offer big tax savings, there are a few things to watch out for:

• You must fund it consistently, even in slow years
• You must keep the plan active for a while (usually 3+ years)
• They have setup and admin costs (but the tax savings usually outweigh these)

If you're unsure, ask a retirement planner to run the numbers before jumping in.

When Is the Best Time to Set One Up?

The best time to start a defined benefit plan is before the year ends—usually by December 31st. That way, you can take the tax deduction for the year.

But you can fund it up until the business tax deadline, including extensions.

So, if you act early, you’ll have plenty of time to contribute.

Final Thoughts

If you're a business owner who wants to save for retirement and pay less in taxes, a defined benefit plan might be your perfect solution.

It’s a powerful tool that helps you:

• Catch up on retirement
• Reward key employees
• Cut your tax bill—sometimes by tens of thousands of dollars

It may sound complex, but with the right help, it’s actually pretty simple.

Talk to a tax advisor or retirement specialist today to see if this plan makes sense for your business.

You’ve worked hard to build your company. Now let your money work just as hard for your future.