Masonry Magazine May 2003 Page. 50
Finance Management
Retirement Plans, Part I
▼ Carl Sanger
Serenity Wealth Management. LLC
New York, Ν.Υ.
Locked out of a retirement savings plan because you own or work for a small business? Now, you can have all the retirement savings advantages the big companies do!
There was a time when only the very large firms could offer a formal retirement plan for their owners, officers and employees. In fact, giving up the opportunity to partake in a retirement plan was one of the big sacrifices you made if you wanted to work for yourself or own a small business. Well, thanks to the Economic Growth and Tax Relief Reconciliation Act of 2001, and more tax legislation passed in 2002, this situation has completely reversed itself. The fact is that, even in these turbulent times, there are things you can do, regardless of the size of your business or workplace, that can ensure you have a prosperous retirement.
What has changed?
Where you once had to rely on making paltry contributions to your IRA as your only tax-advantaged vehicle to save for retirement, you now have a number of bona-fide investment plan choices that will let you retire in style. Under the new rules, you can:
* create your own tax-advantaged retirement fund and contribute generously;
* offer a comprehensive retirement plan when recruiting new employees;
* retain your better employees they'll no longer have reason to leave your company for another company just for the sake of getting a retirement plan; and
* reap the same tax advantages as the larger firms get when making retirement plan contributions.
What Retirement Plan Choices do I have?
In this first of two articles, let's take a look at some of the pros and cons of three of the more popular types of plans. If you would like additional information about how to set up, maintain and manage one of these plans or any of the other plans available, I recommend that you seek an investment advisor skilled in this specialized financial field. He or she will be able to work with you on setting up a plan for you and/or your employees that will not only meet your retirement goals, but maximize your tax benefits as well.
Even in these turbulent times, there are things you can do that can ensure you have a prosperous retirement.
The Solo 401(k) Plan:
This is, by far, the hottest new retirement strategy being used by businesses where the owner or owners are the only employees. The Solo 401(k) Plan is ideal for sole-practitioner professionals, small retail business owners, freelance writers and consultants, among others. This plan can even be contributed to solely from part-time income. (Of course, if you work for another company full-time and contribute to their 401(k) plan, you cannot exceed the maximum allowable annual contribution between the two plans.)
Boasting one of the more generous contribution limits, this plan allows you to contribute on your own plus have your own company match a percentage of your personal contribution up to an annual total of $40,000 or 100 percent of your income, whichever is less. So, if you earn $160,000, for example, you could contribute the legal limit of $11,000 personally and your company can contribute the difference up to 25 percent of your earnings, making a total annual contribution of up to $40,000. And, just as with all 401(k) plans, the contribution you make is deducted from your gross income, lowering your tax burden. If you are age 50 or older, you also are even allowed to contribute an extra $2,000 above the annual limit as a "catch-up" provision.
The major drawback to the Solo 401(k) Plan comes into play if you decide to hire an employee who is not an owner of your company. In other words, if you have a small business and you one day plan to expand and hire more employees, you could open a can of worms. If you