412(e)(3) - Fully Insured Defined Benefits

What Fortune 500s quietly use… now built for business owners like you.

What is 412(e)(3)?

A 412(e)(3) plan is a fully insured defined benefit structure funded with life insurance and fixed annuities. That’s the technical way to say:
You can legally write off massive contributions, potentially in the six or even seven figures annually, while locking in guaranteed retirement income for yourself, your family, and your employees— with zero market risk.

Unlike traditional defined benefit plans, this version is IRS-pre-approved, rigidly structured, and uniquely powerful for tax deferral and asset protection.

Bonus: Because it’s based on fixed insurance contracts, it avoids the volatility of the stock market and bypasses the need for third-party actuarial recalculations every year.

Who are 412(e)(3) plans for?

A 412(e)(3) plan isn’t just for corporate giants with deep actuarial teams — and it isn’t just for entrepreneurial business owners looking for an edge. It’s for any high-income operator who wants to turn tax liabilities into guaranteed retirement assets with IRS-approved precision. Whether you’re running a closely held company, a successful professional practice, or a midsize corporation with predictable cash flow, this structure offers a unique way to supercharge deductions, lock in fixed future income, and get rewarded for thinking ahead.

We typically recommend CLATs to:

  • High-Earning Professionals in Private Practice
    Dentists, doctors, chiropractors, CPAs, attorneys — if your income is strong and predictable, but your retirement plan is underwhelming, this structure lets you play financial catch-up fast, with massive deductions and guaranteed results.

  • Business Owners with Stable Cash Flow
    Own a construction firm, manufacturing shop, logistics company, or tech consulting business? If your bottom line is healthy and you're the key driver of profits, this tool helps you pull money out of the business into your name without triggering a giant tax bill.

  • Entrepreneurs Preparing to Exit
    If you're 5–10 years from selling your business, this is a powerful exit strategy: front-load retirement savings, reduce taxes during peak years, and position yourself for a more efficient transition — all with IRS-preapproved mechanics.

  • Tax-Weary Business Owners
    Tired of writing big checks to the IRS every April? 412(e)(3) helps you turn that liability into an asset. You’re still writing the check — but now it’s to your future, not Washington.

  • Family Businesses
    If you want to set up guaranteed retirement income while passing the business to the next generation, this strategy lets you peel off large sums tax-efficiently, with optional life insurance riders to protect the estate transition.

  • Anyone Hitting 401(k)/SEP IRA Ceilings
    If you’ve already maxed out your traditional retirement tools — or laughed at their weak contribution limits — a 412(e)(3) plan gives you real capacity to accelerate savings while reducing current taxable income.

  • Older Business Owners Late to Retirement Planning
    If you’re in your 50s or 60s and feel behind, this lets you catch up fast, without gambling on the market or guessing at returns. The closer you are to retirement, the higher your contribution limits — and the more this strategy shines.

How does a 412(e)(3) work?

The 412(e)(3) plan is a fully insured defined benefit plan governed by strict IRS rules — but when designed properly, it becomes a tax-deductible powerhouse that rewards both you and your employees.

1. Design the Plan to Fit Your Business
We start by customizing a retirement plan tailored to your goals, income, and company structure. Whether you're a sole proprietor or running a firm with multiple employees, the plan is designed to meet IRS requirements while maximizing benefits to key personnel — especially you, the owner.

2. Set a Guaranteed Retirement Benefit
The 412(e)(3) plan promises a specific retirement income — backed by annuity and life insurance contracts. Because the benefit is guaranteed, the IRS allows significantly higher contributions than 401(k)s or SEP IRAs. The older you are and the fewer years to retirement, the larger the allowable contribution — sometimes $200K+ annually, fully deductible.

3. Fund With Fixed Insurance Contracts
Instead of investing in mutual funds or equities, this plan is funded entirely with fixed annuities and/or whole life insurance — providing stable, contractual guarantees. That’s what sets 412(e)(3) apart: there’s no market exposure, no volatility, and no annual re-testing like traditional defined benefit plans.

4. Contributions Are Made by the Employer (That’s You)
Your business makes annual contributions to the plan — and deducts them as a business expense. If you have employees, the plan must cover them too (subject to 410(b) eligibility rules), but you can tilt the benefits toward older, higher-earning employees — often including only a few key team members and yourself.

5. Employee Benefits, Owner-Weighted Results
Yes, your employees receive guaranteed retirement benefits — but plan design ensures your personal benefit far outweighs the cost. The result: you meet IRS fairness rules, retain good talent, and still capture the lion’s share of the tax deduction and retirement value.

6. Build Tax-Deferred Wealth Over 5–10 Years
As contributions are made, retirement assets accumulate steadily within insurance-based contracts. No market swings, no investment management stress. You just build a guaranteed future benefit while reducing taxable income today.

7. Strategic Exit: Roll Out or Retire In-Plan
When you’re ready to retire, exit the business, or terminate the plan, assets can be rolled into an IRA or income-producing annuity, triggering tax-efficient distributions. You’ve converted years of tax savings into lifelong retirement income — and possibly left your team better off too.

8. Optional Legacy: Life Insurance Payout
If life insurance is used in the plan, your family may receive a tax-free death benefit in addition to your retirement payouts — giving the plan dual value: income and legacy.

Frequently Asked Questions

  • A: Not at all. While Fortune 500 firms can use 412(e)(3) plans, they actually work best for closely held businesses with 1 to 10 employees — particularly when the owner is the primary earner. If you’re a professional practice, a family-run company, or a high-income entrepreneur, this is one of the few tools that lets you take advantage of your structure instead of being punished by it.

  • A: Absolutely. A 412(e)(3) plan can operate side-by-side with a 401(k), SEP, or Profit Sharing plan — and that’s where the real magic happens. We call it Tax Efficient Layering: strategically stacking qualified plans to maximize deductions and minimize tax drag without triggering IRS red flags.

  • A: You don’t have to. Most of our clients fund the plan for 5 to 10 years — just enough to front-load deductions during high-income years. After that, you can terminate the plan and roll over the assets into an IRA or annuity structure. It’s flexible on the back end, even if it’s disciplined up front.

  • A: Not with us. While 412(e)(3) plans have specific rules, our team handles all of the design, compliance, insurance contracts, and reporting. You get a clean onboarding, a compliant structure, and a guided experience with zero guesswork. We make complex look easy — that’s our job.

  • A: These plans require consistent funding, so if you expect volatile cash flow, we’ll adjust the design accordingly. That might mean setting a shorter plan horizon (e.g., 5 years instead of 10), targeting lower benefits, or building a hybrid approach that blends flexibility with tax efficiency. Either way, we’ll make sure the plan fits your financial reality — not the other way around.

  • A Insurance section plans entered the Code in 1974 along with ERISA, and National Pension Partners has designed and serviced these plans for many years. The Internal Revenue Service have had in the past an active compliance program looking for “abusive” plans. Our understanding is that an abusive plan is generally one whose life insurance form or amount is inappropriate, including “springing cash values,” or whose insurance coverage is not incidental to the Plan benefits or one whose benefits exceed the lump sum limits of IRC 415(b).

The Tools Behind the Layers

Each TEL strategy has its own role. When layered, they multiply value.

Click Below to Examine each one.

Ready to Layer Up?

You’ve worked too hard to leave your financial future to chance. If you're ready to use the tools the ultra-wealthy have used for decades — and apply them to your business or household — let's talk.