Retirement plans for Small business owners

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Starting a retirement savings plan can be easier than most business owners think. Whats more, there are a number of retirement programs that provide tax advantages to both employers and employees.

Why Save?

Experts estimate that Americans will need 70 to 90 percent of their preretirement income to maintain their current standard of living when they stop working. So now is the time to look into retirement plan programs. As an employer, you have an important role in helping Americas workers save.

By starting a retirement savings plan, you will help your employees save for the future. Retirement plans may also help you attract and retain qualified employees, and they offer tax savings to your business. You will help secure your own retirement as well. You can establish a plan even if you are self-employed.

A retirement plan has significant tax advantages:

  • Employer contributions are deductible from the employers income,
  • Employee contributions (other than Roth contributions) are not taxed until distributed to the employee, and
  • Money in the plan grows tax-free.

Any Other Incentives?

In addition to helping your business, your employees and yourself, it is easy to establish a retirement plan, and there are additional reasons for doing so:

  • High contribution limits so you and your employees can set aside large amounts for retirement;
  • Catch-up" rules that allow employees aged 50 and over to set aside additional contributions. The "catch-up" amount varies, depending on the type of plan;
  • A tax credit for small employers that enables them to claim a credit for part of the ordinary and necessary costs of starting a SEP, SIMPLE, or certain other types of plans (more on these later). The credit equals 50 percent of the cost to set up and administer the plan, up to a maximum of $500 per year for each of the first 3 years of the plan;
  • A tax credit for certain low-and moderate-income individuals (including self-employed) who make contributions to their plans (Savers Credit). The amount of the credit is based on the contributions participants make and their credit rate. The maximum contribution eligible for the credit is $2, 000. The credit rate can be as low as 10 percent or as high as 50 percent, depending on the participants adjusted gross income; and
  • A Roth program that can be added to a 401(k) plan to allow participants to make after-tax contributions into separate accounts, providing an additional way to save for retirement. Distributions upon death or disability or after age 59 from Roth accounts held for 5 years, including earnings, are generally tax-free.

A Few Retirement Facts

Most private-sector retirement vehicles are either Individual Retirement Arrangements (IRAs), defined contribution plans, or defined benefit plans.

People tend to think of an IRA as something that individuals establish on their own, but an employer can help its employees set up and fund their IRAs. With an IRA, the amount that an individual receives at retirement depends on the funding of the IRA and the earnings (or losses) on those funds.

Defined contribution plans are employer-established plans that do not promise a specific amount of benefit at retirement. Instead, employees or their employer (or both) contribute to employees individual accounts under the plan, sometimes at a set rate (such as 5 percent of salary annually). At retirement, an employee receives the accumulated contributions plus earnings (or minus losses) on the invested contributions.


2005-12-11 06:52:45 by -

I've read a lo tof responses...

I've witnessed several ways in which a working class person or kid growing up in a poor area can dramatically improve their financial status in America:
1) Get an education (whether that be a skilled trade or college degree)
2) Own a home (Even if you own a small home, the tax benefits and possibility for the appreciation of value is well worth it)
3) Invest (Educate yourself on stocks/bonds/retirement plans. Let the money you can save work for you)
4) Start a business (The tax benefits abound for business owners. It's not always easy to start a business but if you get the opportunity it might pay off many times over)
5) Get married and stay married

2003-03-13 12:18:08 by INFOman

Info on self employed

NEW YORK (CBS.MW) - Wealthier Americans looking to boost their retirement plans and take heftier tax deductions for 2002 can act before year end to benefit from recent tax-law changes.
Small business owners and self-employed professionals such as doctors, lawyers and dentists who fund their own pensions can put more money into their plans. Since the contributions are tax deductible, they would lower their taxes.
For instance, a doctor earning $200,000 a year can put up to $130,287 into his plan at age 52 and deduct the entire amount, Nissenbaum said.
A hefty tax break
A defined benefit plan is a company retirement plan that specifies how much money is paid to retirees for life - usually a monthly sum

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