Investing Information

For entrepreneurs a clean plan may be best - investing


Q: I own a small decorating affair and I'll be the first to admit that I don't know no matter which about taxes or retirement plans. I'd 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 a mixture of retirement plan options existing for a small commerce owner and in your opinion, which would work best for me? -- Wanda S.

A: Wanda, I be glad about your confidence in my humble opinion, but asking me for pecuniary assistance is like asking Donald Trump for a commendation on hair care products. I can tell you what works best for me and my business, but you'll need to do your groundwork and seek expert counsel to amount out what would work best for you. As a side note, I hear that Donald Trump is advent out with his own line of hair care artifact soon to be called "Big Head. " The formula is 1% mousse, 1% liquid nails, and 98% hot air. It must be a big hawker among the high brow, comb-over crowd.

Here's my best guidance on retirement plans: find by hand a pecuniary advisor (or economic planner) who is has encounter effective with small businesses and have him or her account for the options obtainable and make a approval as to the type of plan best appropriate for you and your business. When I say "financial advisor" I'm not conversation about your know-it-all brother-in-law or your accountant. I'm discussion about a agent or economic schemer (or other qualified professional) who has a proven track best of assembly his clients money and is an connoisseur on IRAs, 401(k)s, mutual funds, etc.

The best way to find a good fiscal advisor is to ask for referrals from your most lucrative links and associates. Find the richest, stingiest man in town and ask who his advisor is. Meet with a number of advisors, describe your situation, and ask for their recommendations. You must also make sure the advisor is a good fit for your personality and your business. If all goes well you will be doing affair with this being for many years to come, so make sure the connection feels comfortable to you and that you are assertive in the advisor's capability to control your money.

Let me give you a quick overview of a few of the retirement plans existing to small businesses so you at least have an idea of what's out there ahead of you start your hunt for a good monetary advisor.

As a small affair you fundamentally have three types of retirement plans that you can take help of: the Self-Employed 401(k); the Simplified Worker Hostel Plan or SEP IRA, and the Savings Incentive Match Plan for Employees or Clear-cut IRA. Each allows you to make pre-tax donations to the plan, which lets you save for retirement and decrease your assessable earnings by the total of the contribution. Your nest egg also grow tax-deferred until withdrawal.

A Self-Employed 401(k) is an alternative for self-employed those or affair owners with no employees other than a spouse. The big business can be a sole proprietorship, a partnership, or a corporation, together with S corps. You can make salary deferrals to this type of plan of up to $14,000 for 2005.

Next is the Simplified Member of staff Allowance Plan or SEP IRA. A SEP is an decision if you earn a self-employed earnings from a full or part time business, even if you are enclosed by a retirement plan at your fulltime job. A SEP allows you to be a factor up to 25% of earned income, up to $41,000 for 2004 and $42,000 for 2005.

My chosen type of retirement plan is the Savings Incentive Match Plan for Employees or Clear-cut IRA. The Down-to-earth IRA was produced to make it easier for small businesses with 100 or fewer employees to offer a tax-advantaged, business sponsored retirement plan.

With a Austere IRA you and your eligible employees may add up to 3% of earned pay (with a ceiling input of $10,000) on a pre-tax basis to creature Austere IRAs. You must subtract Collective Collateral and Medicaid from your gross income, but you can then make your Clear-cut IRA gift beforehand other taxes are levied, for practical purposes lowering your chargeable income.

As the employer you must make "matching" or "non-elective" aid into your employees' Clear-cut IRA accounts. Matching assistance means that the big business matches the optional deferral donations made by employees. For example, if the member of staff opts to be a factor 3% of his salary to the plan, the employer must match the 3% contribution.

At first you might flinch at matching your employees' contributions, but as the big business owner and an member of staff physically this can be great news. As an member of staff of your own affair you can add up to $10,000 to your Clear-cut IRA and the big business can then match your giving 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 charity is also deductible as a affair expense.

The non-elective input alternative requires that the business be part of the cause 2% of every employee's earned earnings to the plan on the employee's behalf at any rate of whether or not the worker contributes to the plan himself. For 2005 the greatest input you would be mandatory to make is $4,200.

Like a customary IRA, you can abandon money from a Down-to-earth IRA at any time; nevertheless distributions surrounded by the first two years of involvement are business to senior early withdrawal penalties than established IRAs or Roth IRAs. Withdrawals in the first two years are area under discussion to a 25% early withdrawal penalty. Withdrawals taken after the first two years are area under discussion to a 10% early withdrawal penalty.

As the employer, the recompense of a Austere IRA include: band donations to the plan are tax deductible as a affair expense; plan papers are austere and easy to administer; admin costs are low; and there is no command treatment essential by the employer.

The compensation of a Clean IRA for your employees include: donations are as soon as 100% vested; assistance and dividend are tax-deferred until withdrawal; employees can add 100% of earned pay up to $10,000 for 2005; and employees can address their own money surrounded by the IRA.

This is a byzantine topic and I've just tipped the iceberg here, but confidently this will give you adequate in sequence to get the investment ball rolling.

Here's to your success!

Tim Knox

Small Commerce Q&A is on paper by old hand capitalist and syndicated columnist, Tim Knox. Tim serves as the leader and CEO of three lucrative equipment companies and is the come to nothing of DropshipWholesale. net, an online company committed to the hit of online and eBay entrepreneurs.

Related Links:
http://www. prosperityandprofits. com
http://www. smallbusinessqa. com
http://www. dropshipwholesale. net


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