The Automatic Millionaire by David Bach

Author:David Bach
Language: eng
Format: mobi, pdf
ISBN: 9780767917131
Publisher: The Crown Publishing Group
Published: 2003-12-30T05:00:00+00:00

THE BRAND-NEW ONE-PERSON

401(K)/PROFIT-SHARING PLAN

* * *

This new plan is truly amazing. As a result of the 2002 tax law changes, you can now open up a 401(k) plan for a one-person business at a cost of as little as $150. You can then fund it with up to 100 percent of the first $13,000 you earn in 2004 (more in later years). On top of that, you can use the profit-sharing portion of the plan to contribute up to another 25 percent of your income. The combined total you could contribute in 2002 was $40,000. (This figure will be ratcheted up to account for inflation in 2003 and beyond.)

Check out this math. Say you earned $50,000 as a self-employed businessperson. With a One-Person 401(k)/Profit-Sharing Plan, you could put the first $12,000 you earned into the 401(k) account and then put another $12,500 into the profit-sharing portion. That’s a total of $24,500 in pretax savings—on a $50,000 income! This is why business owners can get rich faster than regular workers. If you use a payroll company like Paychex or ADP, ask them for details because they are now making these plans available. In addition, most full-service financial firms, including mutual fund companies, should be offering them soon (if they aren’t already), so be sure to check with them as well.

Among the companies you can contact for details on these exciting new plans are Aim Funds (www.aimfunds.com), John Hancock Funds (www.jhancock.com), and Pioneer Funds (www.pioneerfunds.com). In most cases, it will cost you as little as $150 to open one of these plans. My wife, Michelle, and I set up one of these plans for our business in 2002 and it took all of twenty minutes to sign up and automate everything.

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