Question

Larry is a sole proprietor of a business with 15 employees. He would like to implement a formal retirement plan for his business. Larry is 55 years old and is planning to retire in 10 years at age 65. His company currently has a strong cash flow, which is expected to continue. Larry's own personal savings retirement need is $85,000 per year, and he pays himself $95,000 annually. The company can afford to contribute $100,000 this year for Larry's account to any retirement plan that is implemented. Larry will also commit to an annual contribution necessary to fund the retirement plan if needed. Based on limited information, which of the following types of qualified retirement plans would you recommend for Larry and his business?

Question options:

Money purchase pension plan

Profit-sharing plan

Traditional defined benefit pension plan

Stock bonus plan

Answer 1

Answer : Correct option is Traditional defined benefit pension plan.

Reason :

A Traditional defined benefit pension plan is pension plan in which an employer promises to give cetain payemnt which can be either lumpsum or on installemt thereof.In this type of pension plan Employer as well employee commits fro an annual contribution .In this case also , Larry will also commit to an annual contribution necessary to fund the retirement plan if needed and has features of Traditional defined benefit pension plan.