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If
you own a small business, you are always
thinking about today. How can you get
more customers today? Is your cash flow
sufficient for today? What are your
competitors doing today? However, you
should not forget about tomorrow.
Specifically, you need to make sure you
build sufficient financial resources to
enjoy a comfortable retirement. To help
you do just that, you need the right
small-business retirement plan.
Since this is the beginning
of a new year, it is a perfect time to
set up the right plan for your needs.
You have several attractive options, all
of which offer some key benefits,
including tax-deferred earnings, the
ability to make pretax contributions and
a variety of investment choices.
These are some of the most
popular retirement plans for small
businesses.
If you have no employees, or
your spouse is your only employee, you
may want to consider one of these plans:
SEP IRA. With a SEP
IRA, you can contribute up to 25 percent
of your compensation into the plan, up
to a maximum of $44,000 in 2006.
Owner-only 401(k). If
you have an owner-only 401(k), you can
put in up to 25 percent of your
compensation plus $15,000 (in 2006). If
you are 50 or older, you can add an
additional $5,000 in catch-up
contributions. (However, you cannot
contribute more than $44,000 in 2006 if
you are under age 50 or $49,000 annually
if you are 50 or older.) Owner-only
401(k) plans also can permit larger
contributions if your spouse works for
the business.
Owner-only defined
benefit. This plan may be
appropriate for you if you earn more
than $100,000 annually from your
business, you are over age 40, you can
commit to contribute for at least three
years, and you desire much larger
contributions than are possible with the
SEP-IRA or the owner-only 401(k).
If you have employees, you
may want to investigate one of these
plans:
SIMPLE IRA.
A SIMPLE IRA is easy to set up and
inexpensive to administer. In 2006, you
and each of your employees can
contribute up to $10,000 to a SIMPLE IRA
(or $12,500 if age 50 or over). Your
business is generally required to match
both your and your employees'
contributions, dollar for dollar, up to
3 percent of their salary, unless you
decide to put in 2 percent of each
eligible employee's compensation.
Safe Harbor 401(k). A
Safe Harbor 401(k) offers the features
of a traditional 401(k), but the amount
you can defer from your salary is not
limited to whether your employees
contribute. You, as the business owner,
benefit because you can contribute up to
the annual maximum ($15,000 in 2006 or
$20,000 if you are 50 or older),
regardless of how much your employees
contribute. Your business is generally
required to match both you and your
employees' contributions, dollar for
dollar, up to 4 percent of their salary,
unless you decide to put in 3 percent of
each eligible employee's compensation.
Safe Harbor 401(k) with
Age-enhanced Profit Sharing. Your
business can make additional
profit-sharing contributions to a Safe
Harbor 401(k) plan. If you are older
than most of your employees, you can
structure your plan so that the
contributions going to your account, and
to those of your key employees, are much
higher than the percentage going to most
employees.
Which retirement plan is
right for you? It all depends on your
individual situation. Your tax adviser
and investment representative can help
you choose the plan that is right for
your needs, now and in the future.
(Louis Mullinger can be
reached at the Edwards Jones office on
Wake Union Church Road in Wake Forest.) |
