Message Font: Serif | Sans-Serif
No. of Recommendations: 0
I have my own little business(sole proprietorship) and
I want to open a retirement plan for myself.
Can anybody help me which of those would be the best.
I think that as a business owner I can have SEP or SIMPLE IRA and this way deduct more money but I'm not sure how it exactly works.
Any suggestions?
Print the post Back To Top
No. of Recommendations: 0
When I setup my retirement plan for my self-employment income, the determining factor was the amount of money that I could contribute. Since my self-employment income is pretty small, the SIMPLE was my best bet.

SIMPLE: Can contribute up to $6,000 as employee with a match up to 3% of compensation to a maximum of $6,000, for a total of $12,000.

SEP: Can contribute 15% of compensation up to $30,000.

By doing the numbers you find that if you make more than $50,000 in profit the SEP is a better deal:

.15x = .03x + $6,000
x = $50,000

But there are a couple other issues. The SEP is a bit more flexable, since the SIMPLE is supposed to be a monthly contribution plan like a 401(k). But since you can create very liberal rules for your SIMPLE (the rules the IRS provides are the most restrictive allowed) you can allow daily contribution level changes.

A Keogh plan is also available, but they are a bit more complex, although you can contribute more.

Definately check out IRS publication 560. It is pretty well written for a goverment document.

Print the post Back To Top