The Savage Truth on Money by Terry Savage

Author:Terry Savage
Language: eng
Format: epub
ISBN: 9781119645481
Publisher: Wiley
Published: 2019-10-11T00:00:00+00:00

The Savage Truth on Small Business Retirement Plans

There are other types of retirement plans available for small business owners to create for themselves and their employees. These plans don’t have to be costly or create a mountain of paperwork. But they can provide an incentive for good employees to stick with the company even through periods of pay cuts.

Among these are the SIMPLE plan—Savings Incentive Match Plan for Employees of Small Employers. It’s easy to set up a plan, working with an insurance company or mutual fund provider. Allowable contributions are significantly higher than an IRA, and workers can contribute up to $13,500 in 2020, plus a $3,000 catch-up contribution for those age 50 or older for a total of $16,500.

Designed for small businesses, the employer must make a contribution every year it maintains the plan. The company can contribute either 2 percent of a worker’s compensation or a dollar-for-dollar matching contribution, not to exceed 3 percent of pay. The employer must make a contribution even if an employee chooses not to, and all employees must receive the same type of contribution.

All of the money, including matching contributions, belongs to the employee. Withdrawals taken before age 59½ incur the standard 10 percent early withdrawal penalty, plus income taxes. But withdrawals made during the first two years face a 25 percent tax penalty.

A Solo 40l(k) plan is the most enticing option for sole proprietors. Since you have only yourself to cover, and part-time employees are not required to be covered, this is a great opportunity to make a significant contribution to a retirement plan. For 2020, you can contribute up to $57,000 to your Solo 401(k), of which a portion can be allocated as a Roth contribution. You have your choice of custodians to set up and maintain the plan, and a wide choice of investment opportunities.

A SEP-IRA is a plan available to individuals, or small business owners with fewer than 10 employees. The employer makes the tax-deductible contribution each year, ranging from zero to 25 percent of compensation, but each employee must receive the same percentage contribution.

Contributions are optional each year, and no contribution is required. All contributions are made by the employer, but each employee maintains his or her own SEP-IRA account and investments. This is a lower-cost and more flexible program than a 40l(k), and it has the same annual contribution limits.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.