How to Contribute to a 412(i) Plan

Even when you have put away a portion of your income to cover your retirement over the course of decades, the amount in your nest egg may not be as large as you had hoped due to market fluctuation. By establishing and contributing to a 412(i) plan, you can provide your family with a guaranteed retirement income, regardless of the direction the market moves.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• 412(i) retirement plan

1. Wait for the annual payment notice from the insurance company with which you have established a 412(i) plan. You contribute to 412(i) plans in much the same way as you purchase life insurance policies. The amount that you contribute each year is determined at the time you set up the 412(i) plan and remains level or can decrease.
2. Check with the insurance company administering your 412(i) plan to determine if the premium you owe has decreased. Depending on the investment performance, you may be entitled to dividends. These dividends must be used to reduce the amount of your payments.
3. Submit your annual payment to the insurance company. Payments continue every year until you retire and begin to draw on the 412(i) retirement plan.
4. Claim the tax deductions from the 412(i) plan to which you are entitled. By reducing the income on which you are taxed, you will pay less in taxes today. You will, however, have to pay taxes when you withdraw funds from the 412(i) plan.
5. Retain a copy of the statement from your insurance company for your tax records. You may need payment records if your tax deductions are ever questioned. This record can also help you keep track of how much money you are saving each year on your deductions from your 412(i) plan.

Tips & Warnings

• If you are contributing to a few different types of retirement plans, consult a tax professional to determine which of your contributions are deductible at the end of the year.
• Unlike life insurance policies that you may purchase, you cannot take a loan against your 412(i) plan. You will not be able to access the funds that you contribute until you retire.
• If you are the employer or the sole beneficiary of the plan, you must cover the cost of administrative fees in addition to making contributions.