Self Employed Benefits

Self Employed Retirement Plans

For a self employed individual who is not going to have nay full time employees, thinking about self employed retirement plans is a must. And what could be better than opting for individual 401(k) plan. When you add a profit sharing plan, it increases your amount of maximum contribution every year and this means you would improve your retirement savings kitty. All these contributions would be tax deductible to your business and tax deferred on the individual side. This means you would be getting double tax benefit if you are saving with 401(k) for your retirement.

Let us have a look at some of the benefits of opting or 401(k) plans.

As discussed earlier, you get self employed tax deductions with simple 401(k) plans. What is more, if you opt for a traditional 401(k) plan, you would have to perform some non-discrimination and top heavy testing. Then only they would accept that the plan is going to operate in compliance with their regulatory requirements. With a simple 401(k) plan, you don't have to bother about it. There would be no administration cost of testing. Another major advantage of this plan is that you get to borrow from your own funds and make loan. This means you would be paying interest to your own accounts.

Self employed retirements plans are ideal for someone to retire peacefully without much headache in getting it operational. One of the simplest retirement plans is the Simplified Employee Pension (SEP) plan. It is perhaps the best retirement plan for the self employed. But this doesn't mean others can't use it. It could be used by sole proprietors, partnerships, independent contractors and other businesses also. What is the one thing that all of us run from? Yes, it is the amount of paper work that is related to any official job. Well, don't worry; it is not the case with this plan. You would have to take care of minimum of paper work. Yes, one technical aspect of this plan is that you can establish this plan if and only if you don't have any other qualified retirement plan in effect.

If you are self employed with employees you would have to open an individual retirement account (IRA) for each an every employee who is eligible. You would have to put money into their accounts. You as an employer would be entitled to the responsibilities of funding the entire contribution. The rule states that the employer has to make contributions up to or less than 15% or $30,000 of compensation to the account established for each employee. This is what is as SEP-IRA.

These contributions could be withdrawn or transferred by the employee and at any time he wishes to. All these IRA accounts are subject to the applicable rules of the IRA as regards transfer, withdrawal and taxation.

You can also opt for SIMPLE or Savings Incentive Match Plan for Employees. This plan was established by the Small Business Owners Protection Act of 1996. if you are an employer having no other retirement plan in effect and have less than 100 employees with at least $5000 in compensation for the last year, you can set up a SIMPLE.

This is not intended to be used as tax or investment advice and for specific information contact your financial advisor.

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