The retirement plan that would allow an older, high income, self-employed individual to maximize their retirement savings would be a

The retirement plan that would allow an older, high income, self-employed individual to maximize their retirement savings would be a

• A. solo 401(k) plan.
• B. a simplified employee pension (SEP) plan.
• C. defined benefit plan.
• D. a SIMPLE IRA plan.

Answer: (C)

A defined benefit plan is the option that allows the most aggressive, tax-advantaged accumulation for someone who is older, earns a high income, and is self-employed. It promises a specific retirement benefit and uses actuarial calculations to determine the annual contribution needed to fund that benefit. Because the plan is not limited by the same annual contribution caps as defined-contribution plans, it can accommodate much larger tax-deductible contributions, which is especially valuable for someone with high income who wants to maximize retirement savings. In contrast, SEP plans and SIMPLE IRAs and even a solo 401(k) are defined-contribution plans with contribution limits tied to compensation and fixed caps. While they are simpler and cheaper to administer, they typically cannot reach the substantial annual contributions a well-designed defined benefit plan can provide. The defined benefit approach thus best achieves maximizing savings, despite greater complexity and funding requirements.

A defined benefit plan is the option that allows the most aggressive, tax-advantaged accumulation for someone who is older, earns a high income, and is self-employed. It promises a specific retirement benefit and uses actuarial calculations to determine the annual contribution needed to fund that benefit. Because the plan is not limited by the same annual contribution caps as defined-contribution plans, it can accommodate much larger tax-deductible contributions, which is especially valuable for someone with high income who wants to maximize retirement savings.

In contrast, SEP plans and SIMPLE IRAs and even a solo 401(k) are defined-contribution plans with contribution limits tied to compensation and fixed caps. While they are simpler and cheaper to administer, they typically cannot reach the substantial annual contributions a well-designed defined benefit plan can provide. The defined benefit approach thus best achieves maximizing savings, despite greater complexity and funding requirements.