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 | Article category: Credit Repair
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Credit Repair InformationFor Entrepreneurs A Simple IRA May Be Best
by:
Tim Knox
Q: I own a small decorating business and I’ll be the 1st to admit that I don’t cognize thing
simply about taxes or retirement plans. I’d like to set up a 401(k) or an IRA or several another kind of retirement plan for me and my three employees. What are the various retirement plan options accessible for a small business owner and in your opinion, which would-be activity better for me?
-- Wanda S.
A: Wanda, I appreciate your confidence in my humble opinion, but asking me for fiscal proposal
is like asking Donald Trump for a recommendation on hair care products. I can tell you what works better for me and my business, but you’ll need to do your prep and seek professional proposal
to numbers out what would-be activity better for you. As a side note, I hear that Donald Trump is coming out with his own line of hair care product shortly to be called “Big Head.” The formula is 1ousse, 1iquid nails, and 98ot air. It should be a big marketer among the high brow, comb-over crowd.
Here’s my better proposal
on retirement plans: find yourself a fiscal adviser (or fiscal planner) who is has experience working with small businesses and have him or her explain the options accessible and do a recommendation as to the type of plan better suited for you and your business. Once
I say “financial advisor” I’m not talking simply about your know-it-all brother-in-law or your accountant. I’m talking simply about a broker or fiscal planner (or another accredited professional) who has a proved track record of devising his clients money and is an expert on IRAs, 401(k)s, mutual funds, etc.
The better way to find a nice fiscal adviser is to ask for referrals from your most booming friends and associates. Find the richest, stingiest man in town and ask who his adviser is. Meet with several advisors, explain your situation, and ask for their recommendations. You should besides do sure the adviser is a nice fit for your personality and your business. If all goes well you wish be doing business with this person for galore years to come, so do sure the relationship feels comfortable to you and that you are confident in the advisor’s ability to manage your money.
Let me give you a quick summary
of a few of the retirement plans accessible to small businesses so you at least have an idea of what’s out there before you start your search for a nice fiscal advisor.
As a small business you fundamentally have three types of retirement plans that you can take advantage of: the Self-Employed 401(k); the Simplified Worker
Pension Plan or SEP IRA, and the Savings Incentive Match Plan for Employees or SIMPLE IRA. Each allows you to do pre-tax contributions to the plan, which lets you save for retirement and lessen your assessable financial gain
by the numbers of the contribution. Your investments besides grow tax-deferred until withdrawal.
A Self-Employed 401(k) is an option for self-employed individuals or business owners with no employees another than a spouse. The business can be a sole proprietorship, a partnership, or a corporation, including S corps. You can do wage deferrals to this type of plan of up to $14,000 for 2005.
Next is the Simplified Worker
Pension Plan or SEP IRA. A SEP is an option if you earn a self-employed financial gain
from a full or part time business, even as if you are covered by a retirement plan at your fulltime job. A SEP allows you to contribute up to 25f attained
income, up to $41,000 for 2004 and $42,000 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 do it easier for small businesses with 100 or fewer employees to offer a tax-advantaged, institution sponsored retirement plan.
With a SIMPLE IRA you and your eligible employees may contribute up to 3f attained
financial gain
(with a maximum contribution of $10,000) on a pre-tax basis to individual SIMPLE IRAs. You must deduct Societal Safety and Health care
from your gross income, but you can then do your SIMPLE IRA contribution before another taxes are levied, effectively lowering your assessable income.
As the leader
you must do “matching” or “non-elective” contributions into your employees’ SIMPLE IRA accounts. Matching contributions means that the business matches the elective deferral contributions ready-made by employees. For example, if the worker
opts to contribute 3f his wage to the plan, the leader
must match the 3 ontribution.
At 1st you mightiness cringe at matching your employees’ contributions, but as the business owner and an worker
yourself this can be great news. As an worker
of your own business you can contribute up to $10,000 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 besides deductible as a business expense.
The non-elective contribution option requires that the institution contribute 2f every employee’s attained
financial gain
to the plan on the employee’s behalf regardless of whether or not the worker
contributes to the plan himself. For 2005 the maximum contribution you would-be be required to do is $4,200.
Like a traditional IRA, you can withdraw money from a SIMPLE IRA at any time; however distributions inside
the 1st two years of participation are subject to higher early withdrawal penalties than traditional IRAs or Author IRAs. Withdrawals inside
the 1st two years are subject to a 25arly withdrawal penalty. Withdrawals taken after the 1st two years are subject to a 10arly withdrawal penalty.
As the employer, the advantages of a SIMPLE IRA include: institution contributions to the plan are tax deductible as a business expense; plan documents are simple and easy to administer; administration price are low; and there is no government coverage required by the employer.
The advantages of a SIMPLE IRA for your employees include: contributions are instantly 100ested; contributions and earnings are tax-deferred until withdrawal; employees can contribute 100f attained
financial gain
up to $10,000 for 2005; and employees can direct their own investments inside
the IRA.
This is a complex topic and I’ve simply tipped the iceberg here, but hopefully this wish give you enough information to get the investment ball rolling.
Here’s to your success!
Tim Historian
Just simply about the author:
Tim serves as the president and CEO of three booming technology companies and is the founder of DropshipWholesale.net, an online organization dedicated to the success of online and eBay entrepreneurs. Related Links: http://www.prosperityandprofits.comhttp://www.smallbusinessqa.comhttp://www.dropshipwholesale.nethttp://www.30dayblueprint.com
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