In what may be the biggest tax deduction scheme around, some 
self-employed individuals are sheltering as much as $165,000 
or more per year with tax deductible contributions to their 
retirement plans.  Such high levels of deductions can be 
legitimately achieved through the use of a defined benefit, 
or DB, retirement plan.

It's a well-known fact that putting money in a retirement plan is
a great way to reduce taxes on current income while accumulating 
a nest egg for retirement.  With the creation of solo DB plans, 
it is now easier for business owners with no employees to sock 
away significant retirement dollars for themselves.

DB plans provide a specific monthly or annual benefit for their 
participants at retirement age.  This retirement benefit is 
based on a formula that is predetermined at the time the plan 
is established.  The amount of a participant’s retirement 
benefit is usually based on a combination of his or her 
compensation and years with the employer. Yearly an actuary 
determines the amount the business must contribute for the 
participant in order to fund the promised retirement benefit.

DB plans are generally more complex and more expensive than 
other types of small business retirement plans.  But, the 
huge tax savings attainable with a DB can far outweigh these 
negatives.  That’s because the annual contributions of the DB 
plan may exceed by three or four times the maximum limits 
allowed for other plans such as the 401(k), SEP-IRA, or Keogh.

Thus, the solo DB plan makes most sense for the older highly 
compensated entrepreneur, with no employees other than a spouse, 
whose business can stash $100,000 or more into a retirement plan 
for at last five years.

A few mutual fund companies have begun to offer turn-key solo DB 
or uni-DB plans that simplify and reduce the cost of setting up 
and maintaining these plans for firms whose only employees are 
owners and their spouses.  Ask your financial advisor or 
accountant about these plans.