Defined benefit retirement plans are an option that interest many self-employed individuals who want to prepare for the future.

Defined benefit plans are those where annual contributions are set by determining the amount necessary to provide a SPECIFIC retirement benefit to the plan participant. The formula for figuring contribution amounts is not based on current earnings but on actuarial assumptions and computations. These plans are more costly to administer than defined contribution plans (below), but can yield greater tax benefits, especially for the taxpayer who starts a plan later in life. The maximum annual benefit for this kind of plan is shown in the table that follows.