Posted by xin xiu24 on 2. Aug 2016
own a small decorating business and Ill be the first to admit that I dont know
anything about taxes or retirement plans. Id like to set up a 401(k) or an IRA
or some other kind of retirement plan for me and my three employees. What are
the various retirement plan options available for a small business owner and in
your opinion Carlos
Rivas Jersey , which would work best for me?
A: Wanda, I appreciate your confidence in my humble opinion, but
asking me for financial advice is like asking Donald Trump for a recommendation
on hair care products. I can tell you what works best for me and my business,
but youll need to do your homework and seek professional advice to figure out
what would work best for you. As a side note Bryan
Rochez Jersey , I hear that Donald Trump is coming out with his own
line of hair care product soon to be called Big Head. The formula is 1% mousse,
1% liquid nails, and 98% hot air. It should be a big seller among the high brow,
Heres my best advice on retirement plans: find yourself
a financial advisor (or financial planner) who is has experience working with
small businesses and have him or her explain the options available and make a
recommendation as to the type of plan best suited for you and your business.
When I say financial advisor Im not talking about your know-it-all
brother-in-law or your accountant. Im talking about a broker or financial
planner (or other licensed professional) who has a proven track record of making
his clients money and is an expert on IRAs Brek Shea
Jersey , 401(k)s, mutual funds, etc.
The best way to find a
good financial advisor is to ask for referrals from your most successful friends
and associates. Find the richest, stingiest man in town and ask who his advisor
is. Meet with several advisors Blank
Jersey , explain your situation, and ask for their recommendations.
You should also make sure the advisor is a good fit for your personality and
your business. If all goes well you will be doing business with this person for
many years to come, so make sure the relationship feels comfortable to you and
that you are confident in the advisors ability to manage your money.
me give you a quick overview of a few of the retirement plans available to small
businesses so you at least have an idea of whats out there before you start your
search for a good financial advisor.
As a small business you basically
have three types of retirement plans that you can take advantage of: the
Self-Employed 401(k); the Simplified Employee Pension Plan or SEP IRA, and the
Savings Incentive Match Plan for Employees or SIMPLE IRA. Each allows you to
make pre-tax contributions to the plan Aurelien
Collin Jersey , which lets you save for retirement and lessen your
taxable income by the amount of the contribution. Your investments also grow
tax-deferred until withdrawal.
A Self-Employed 401(k) is an option for
self-employed individuals or business owners with no employees other than a
spouse. The business can be a sole proprietorship, a partnership, or a
corporation, including S corps. You can make salary deferrals to this type of
plan of up to $14 Adrian
Winter Jersey ,000 for 2005.
Next is the Simplified
Employee Pension Plan or SEP IRA. A SEP is an option if you earn a self-employed
income from a full or part time business, even if you are covered by a
retirement plan at your fulltime job. A SEP allows you to contribute up to 25%
of earned income, up to $41,000 for 2004 and $42 Adam
Bedell Jersey ,000 for 2005.
My preferred type of
retirement plan is the Savings Incentive Match Plan for Employees or SIMPLE IRA.
The SIMPLE IRA was created to make it easier for small businesses with 100 or
fewer employees to offer a tax-advantaged, company sponsored retirement
With a SIMPLE IRA you and your eligible employees may contribute up
to 3% of earned income (with a maximum contribution of $10,000) on a pre-tax
basis to individual SIMPLE IRAs. You must deduct Social Security and Medicaid
from your gross income, but you can then make your SIMPLE IRA contribution
before other taxes are levied Orlando City SC Jersey ,
effectively lowering your taxable income.
As the employer you must make
matching or non-elective contributions into your employees SIMPLE IRA accounts.
Matching contributions means that the business matches the elective deferral
contributions made by employees. For example, if the employee opts to contribute
3% of his salary to the plan, the employer must match the 3% contribution.
At first you might cringe at matching your employees contributions, but
as the business owner and an employee yourself this can be great news. As an
employee of your own business you can contribute up to $10 Tyler
Turner Orlando City Jersey ,000 to your SIMPLE IRA and the business
can then match your contribution dollar-for-dollar, which means that you can put
up to $20,000 in tax free dollars into the plan per year. The cost of the
contributions is also deductible as a business expense.
contribution option requires that the company contribute 2% of every employees
earned income to the plan on the employees behalf regardless of whether or not
the employee contributes to the plan himself. For 2005 the maximum contribution
you would be required to make is $4,200.
Like a traditional
Cascio Orlando City Jersey , you can withdraw money from a SIMPLE
IRA at any time; however distributions within the first two years of
participation are subject to higher early withdrawal penalties than traditional
IRAs or Roth IRAs. Withdrawals within the first two years are subject to a 25%
early withdrawal penalty. Withdrawals taken after the first two years are
subject to a 10% early withdrawal penalty.
As the employer, the
advantages of a SIMPLE IRA include: company contributions to the plan are tax
deductible as a business expense; plan documents are simple and easy to
administer; administration costs are low; and there
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