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Choosing a Retirement Plan
Choosing a Retirement Plan for Your Small Business
While there are many perks of being a small business owner, these perks also lend to more responsibility. As a sole proprietor, you are responsible for your own retirement planning. This gives you the opportunity to choose the retirement plan that fits well with your goals. The Individual 401k (or Solo 401k) and the SEP IRA (Simplified Employee Pension Plan) are considered the most popular solutions.
The Solo 401k offers tax-deferred growth, tax-deductible contributions, and pre-tax employee deferral contributions. The 2015 annual contribution limit is $53,000 for an owner and their spouse ($18,000 each, plus up to 25% of the income from the business). Plus, there is a $6,000 catch-up contribution provision for those age 50 or older. This plan is best for owner-only businesses that don’t have any other employees besides a spouse. The deadline to open a new plan is December 31.
A SEP IRA is considered very easy to setup and features tax-deferred growth potential and tax-deductible contributions. If a sole business owner has employees, they must be included in the plan. The annual contribution limit for this plan must be decided by the employer and can vary each year between 0% and 25% of compensation (with the maximum for 2015 being up to $53,000), and each eligible employee must receive the same percentage. A SEP IRA must be established by April 15.
You may also consider a SIMPLE IRA (Savings Investment Match Plan for Employees) if you are a self-employed individual with 100 or fewer employees. This plan makes it easier for you to offer tax-advantaged retirement plans. Employer contributions are deductible as business expenses and participants can take advantage of tax-deferred growth potential and pretax contributions. As a plan sponsor, there is a mandatory 3% matching contribution or 2% non-elective contribution. For the current tax year, the plan must be set up and employees must be notified by October 1.
For comprehensive financial planning and advice, consider talking with a professional from FORUM Private Client Group. Call 317.558.6322 or email
*The above is not intended to be tax advice. Please consult a tax professional. Investment advisory services provided by FORUM Private Client group are not NCUA insured, not insured, and are subject to loss of principal.
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