I have a small business that is incorporated and I am the sole employee of it. What are my pension options besides IRA's? Any suggestions are welcomed.Maria
Greetings, Maria, and welcome. You asked:<<I have a small business that is incorporated and I am the sole employee of it. What are my pension options besides IRA's? Any suggestions are welcomed.>>As a small business owner you have three relatively inexensive routes to go with retirement plans, a SEP, SIMPLE or Keogh. You can get a brief overview of all three in my Foolish Retirement Plan Primer available at http://www.fool.com/Retirement/Retirement.htm. You should also read IRS Publication 560 (Retirement Plans for Small Business) available at http://www.irs.ustreas.gov/prod/forms_pubs/index.html.Regards..Pixy
Maria - I am in the same position as you. I elected to set up two corporate plans, a profit sharing plan that can contribute up to 15% per year of my compensation and a 10% money purchase plan. The only reason I did two plans was the possibility of having a down year and not being able to fund all 25%. If you are sure you can part with 25% go with a single money purchase plan since the set up and other fees will be less than if you have two plans. Luckily I have been able to hit the 25% max. in each year. BTW you are also limited to a max. of $30,000 each year. If the corp. is not an S corp. you can also put in loan provisions to borrow from the plan if you need to. Obviously, you should not do this absent a dire emergency since it pulls money (albeit temporarily) out of the tax-deferred growth stream.Finally, if you wind up hiring an employee and can keep the employee to less than 1,000 hours per year you can exclude the employee from the plan.Good luck!
Hi Maria<<I have a small business that is incorporated and I am the sole employee of it. What are my pension options besides IRA's? Any suggestions are welcomed.>>Besides SEP, Profit Sharing Keogh's that are limited to 15% of Pension Pay, and besides Money Purchase Keoghs that are limited to 25% of Pension Pay, there are also Defined Benefit plans that, for workers over age 45, can produce much higher percentages. You'll need a qualified pension actuary to work with you, but you will like the deductions:With a Net Schedule C of $20,000 at age 55, (making the proper Self Employment tax adjustments to net income):Profit Sharing $2,424Money Purchase 3,717Defined Benefit 8,849by - Your friendly pension actuary.
Maria, I posted a response on Motley Fool today to your 3/22 question about retirement plans. See managing your money/retirement.
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