For Entrepreneurs aSimple IRaMay Be Best ( Mutual Funds )..Q: I own asmall decorating business and Ill be the first to admit that I dont know anything about taxes or retirement plans. Id like to set up a401(k) or an IRaor some other kind of retirement plan for me and my three employees. What are the various retirement plan options available for asmall business owner and in your opinionwhich would work best for me? WandaS.

A: WandaI appreciate your confidence in my humble opinionbut asking me for financial advice is like asking Donald Trump for arecommendation on hair care products. I can tell you what works best for me and my businessbut youll need to do your homework and seek professional advice to figure out what would work best for you. As aside noteI hear that Donald Trump is coming out with his own line of hair care product soon to be called Big Head.Mutual Fund The formulais 1% mousse1% liquid nailsand 98% hot air. It should be abig seller among the high browcombover crowd.
Heres my best advice on retirement plans: find yourself afinancial advisor (or financial planner) who is has experience working with small businesses and have him or her explain the options available and make arecommendation as to the type of plan best suited for you and your business. When I say financial advisorMutual Fund Im not talking about your knowitall brotherinlaw or your accountant. Im talking about abroker or financial planner (or other licensed professional) who has aproven track record of making his clients money and is an expert on IRAs401(k)smutual fundsetc.
The best way to find agood financial advisor is to ask for referrals from your most successful friends and associates. Find the richeststingiest man in town and ask who his advisor is. Meet with several advisorsexplain your situationand ask for their recommendations. You should also make sure the advisor is agood fit for your personality and your business. If all goes well you will be doing business with this person for many years to comeso make sure the relationship feels comfortable to you and that you are confident in the advisors ability to manage your money.
Let me give you aquick overview of afew of the retirement plans available to small businesses so you at least have an ideaof whats out there before you start your search for agood financial advisor.
As asmall business you basically have three types of retirement plans that you can take advantage of: the SelfEmployed 401(k); the Simplified Employee Pension Plan or SEP IRAand the Savings Incentive Match Plan for Employees or SIMPLE IRA. Each allows you to make pretax contributions to the planwhich lets you save for retirement and lessen your taxable income by the amount of the contribution. Your investments also grow taxdeferred until withdrawal.
aSelfEmployed 401(k) is an option for selfemployed individuals or business owners with no employees other than aspouse. The business can be asole proprietorshipapartnershipor acorporationincluding S corps. You can make salary deferrals to this type of plan of up to $14,000 for 2005.
Next is the Simplified Employee Pension Plan or SEP IRA. aSEP is an option if you earn aselfemployed income from afull or part time businesseven if you are covered by aretirement plan at your fulltime job. aSEP allows you to contribute up to 25% of earned incomeup to $41,000 for 2004 and $42,000 for 2005.
My preferred type of retirement plan is the Savings Incentive Match Plan for Employees or SIMPLE IRA. The SIMPLE IRawas created to make it easier for small businesses with 100 or fewer employees to offer ataxadvantagedcompany sponsored retirement plan.
With aSIMPLE IRayou and your eligible employees may contribute up to 3% of earned income (with amaximum contribution of $10,000) on apretax basis to individual SIMPLE IRAs. You must deduct Social Security and Medicaid from your gross incomebut you can then make your SIMPLE IRacontribution before other taxes are leviedeffectively lowering your taxable income.
As the employer you must make matchingMutual Fund or nonelectiveMutual Fund contributions into your employees SIMPLE IRaaccounts. Matching contributions means that the business matches the elective deferral contributions made by employees. For exampleif the employee opts to contribute 3% of his salary to the planthe employer must match the 3% contribution.
At first you might cringe at matching your employees contributionsbut as the business owner and an employee yourself this can be great news. As an employee of your own business you can contribute up to $10,000 to your SIMPLE IRaand the business can then match your contribution dollarfordollarwhich means that you can put up to $20,000 in tax free dollars into the plan per year. The cost of the contributions is also deductible as abusiness expense.
The nonelective contribution option requires that the company contribute 2% of every employees earned income to the plan on the employees behalf regardless of whether or not the employee contributes to the plan himself. For 2005 the maximum contribution you would be required to make is $4,200.
Like atraditional IRAyou can withdraw money from aSIMPLE IRaat any time; however distributions within the first two years of participation are subject to higher early withdrawal penalties than traditional IRAs or Roth IRAs. Withdrawals within the first two years are subject to a25% early withdrawal penalty. Withdrawals taken after the first two years are subject to a10% early withdrawal penalty.
As the employerthe advantages of aSIMPLE IRainclude: company contributions to the plan are tax deductible as abusiness expense; plan documents are simple and easy to administer; administration costs are low; and there is no government reporting required by the employer.
The advantages of aSIMPLE IRafor your employees include: contributions are immediately 100% vested; contributions and earnings are taxdeferred until withdrawal; employees can contribute 100% of earned income up to $10,000 for 2005; and employees can direct their own investments within the IRA.
This is acomplex topic and Ive just tipped the iceberg herebut hopefully this will give you enough information to get the investment ball rolling.
Heres to your success!


ABOUT THE AUTHOR

Tim serves as the president and CEO of three successful technology companies and is the founder of DropshipWholesale.netan online organization dedicated to the success of online and eBay entrepreneurs. Related Links: .....dropshipwholesale.net/ .....dropshipwholesale.net .....30dayblueprint.com/ .....30dayblueprint.com



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