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For Entrepreneurs A Simple Plan is The Best

Written by admin on February 13th, 2010

Q: I own a small decorating business and I am the first to admit I know nothing of tax and pension contributions. I would like to establish a 401 (k) or IRA or other type of retirement plan for me and my three employees. What are the different options for retirement plans are available for a small business owner and you think it would be best for me?
- Wanda S.

A: Wanda, I appreciate the confidence in my humble opinion, but you asked me to ask for financial advice is like Donald Trump for a recommendation on hair care products. I can not tell you what is best for me and my business, but you must do your homework and professional advice to know what is best for you to search for work. As a side note, I hear that Donald Trump comes with its own range of hair care will soon be as “big head.” Formula 1% foam, 1% liquid nails, and 98% hot air. He should set a Best selling in the high brow, comb-over.

Here’s my best advice on retirement: you find a financial advisor (or financial planner) who has experience working with small businesses and have him explain the options available and a recommendation for the type of plan best for you and your business. When I say “financial advisor” I am not talking about your know-it-all brother-sister or your accountant. I spoke to a broker or financial advisor (or other licensed professional) who has a proven track record of making clients money and is an expert in IRA, 401 (k) s, mutual funds, etc.

The best way to find a financial advisor is good to ask for references from your most successful friends and colleagues. Here you will find the richest, stingiest man in town and ask who was his adviser. Meet with several advisors, explain your situation and ask for their recommendations. They should also ensure that the consultant is a good fit for your personality and your business. Hopefully, you’ll get business with this person for many years to come, so make sure the relationship feels good to you and you are in the Council’s ability to safely manage your money.

Let me give you a brief overview of some pension plans for small businesses, so you at least an idea of what exists before you begin your search for a good financial adviser.

As a small business, you have basically three types of pension that allows you to benefit from: Independent 401 (k) plan Simplified Employee Pension IRA or September, and the match savings incentive for employees or simple IRA . Each allows you to pre-tax contribution plan that allows you to save for retirement and reduce your taxable income the amount of the contribution. Your investments also grow tax deferred until withdrawn.

A Self-Employed 401 (k) is an option for self-employed or entrepreneurs with no employees other than a spouse. The company is a sole proprietorship, partnership or corporation, including the body S. You can wage reports for this type of scheme not exceeding $ 14,000 in the year 2005.

Call the Plan Simplified Employee Pension IRA or September. September is an option if you earn income from a self-employed full or part-time business, even if you are covered by a retirement plan at your full time job. In September, you can contribute up to 25% on income up to $ 41,000 for 2004 and $ 42,000 for 2005.

My favorite type of pension plan is economic incentive for employees of the match or simple IRA. The IRA was created just to make it easier for small businesses with 100 or fewer employees, a tax-favored companies want to offer retirement plans.

With a simple IRA that you and your eligible employees to contribute up to 3% of income can (with a maximum of 10,000 U.S. dollars) in earnings before taxes for individuals SIMPLE IRA. Need Social Security and Medicare deducted from gross income, but you can make your SIMPLE IRA contribution before other taxes are levied, effectively lowering your taxable income.

Whether matching “employer” or “non-choice for” Simple IRA contributions in the accounts of your employees. Matching contributions means that the company respects the choice deferral of employee contributions. For example, if the worker for 3% of salary to contribute to the plan, the employer must respect the 3% interest.

First they could slip in matching contributions from your employees, but as entrepreneurs and workers so they can be much news. As an employee of your company, you may be able to contribute up to € 10,000 to the SIMPLE IRA and the economy then your contribution dollar for dollar, meaning that you provide up to $ 20,000 in tax dollars free in the plan year. The cost of contributions is also deductible as operating expense.

The optional non-contribution election require that companies provide 2% of the income of each employee’s plan on behalf of the employee, regardless of whether the employee contributes to the plan itself. For 2005, the subsidy will be obligated to, is $ 4,200.

Like a traditional IRA you can withdraw money from an IRA at any time simply, however, distributions during the first two years of participation are subject to penalties for withdrawal sooner than traditional IRA or Roth IRA. The withdrawals are in the first two years are subject to a penalty of 25% of early retirements. These will be after the first two years subject to a penalty of 10% of early retirements.

Since employers are the advantages of an IRA simple: Employer contributions to the plan deductible expenses as tax deductible, the plan documents are simple and easy to administer, administration costs are low and there is no government reports required by the employer.

The advantages include a simple IRA for your employees: contributions are immediately transferred to 100%, contributions and earnings are tax exempt, deferred until withdrawal, employees can contribute 100% of income up to $ 10,000 for 2005, and employees can direct their own investments in the IRA.

This is a complex issue and I just tip of the iceberg here, but I hope it will be enough information to attract the kickoff investment.