Planning to start your own business or do you already have one? Retirement is probably not one of your top priorities, but it should be. There’s a lot to do when you own your own business. However, you shouldn’t neglect your retirement needs. You may have a plan for yourself, like a traditional or Roth IRA, but they only allow contributions up to $5,000 a year ($6,000 if you are 50 or older). But what about your employees?
There are options for you that are low cost and easy to manage. Here we’re gonna focus on two of them: the SIMPLE and SEP IRA plans. Check out this article for a couple more options such as an Individual 401k and defined benefit plan.
First is the SEP IRA, or Simplified Employee Pension Individual Retirement Arrangement. This allows the owner to contribute a piece of company profits to it’s employees and the owner him/herself. What each employee receives is based on his or her earned income for the year. For 2012, the maximum contribution to a SEP is $50,000, significantly higher than a regular IRA plan. Contributions grow tax-deferred until they are distributed at retirement. Finally, all plan contributions are tax-deductible and will lower taxable income.
Then there is the SIMPLE IRA, or Savings Incentive Match Plan for Employees. This puts the onus on the employee to choose to save for retirement. They may defer up to $11,500 this year (another $2,500 if you are 50+). The owner can match up to 3% of the employee’s compensation and is also tax-deductible. This is a great option for companies who have employees who want to save for retirement and could use the tax break now.
Both options are fairly easy to maintain and are cost-effective. The tax experts at the IRA Financial Group can help you figure out the best plan for your business. Give us a call today at 800.472.0646 or visit our website.