Retirement Plans for Business Owners
Yes, you can plan for retirement as a business owner! This week on The Successful Soulopreneur Radio Show sponsored by Starshine Communities, Kim Dyer of Keystone Capital Management Group joined me to review retirement plans options for owners and their employees.
What are Your Retirement Plan Options?
A 401(k) plan is a workplace retirement account that's offered as an employee benefit. The account allows you to contribute a portion of your pre-tax paycheck to tax-deferred investments. This reduces the amount of income you must pay taxes on in that year. Investment gains grow tax deferred until you withdraw the money in retirement. If you withdraw funds from the plan before age 59½, however, you could pay a 10% penalty and the withdrawal would be subject to federal and state income taxes.
An IRA is a tax-favored investment account. You can use the account to invest in stocks, bonds, mutual funds, ETFs and other types of investments after you place money into it, and you make the investment decisions yourself unless you want to hire someone else to do so for you. You contribute up to $6,000 in 2020. This increases to $7,000 if you're age 50 or older. You'll pay no taxes annually on investment gains, which helps them to grow more quickly.
The Savings Incentive Match for Employees (SIMPLE) IRA is a retirement plan that small businesses with up to 100 employees can offer. It works very much like a 401(k). Contributions are made with pretax paycheck withdrawals, and the money grows tax deferred until retirement. Distributions taken within two years of opening the plan and before age 59½ can result in a hefty penalty, however—25%. You can't borrow from a SIMPLE IRA, either, the way you can from a 401(k).
A Simplified Employee Pension (SEP) IRA allows you to contribute a portion of your income to your own retirement account if you're self-employed and have no employees. You can fully deduct these contributions from your taxable income. The maximum annual contribution limits are higher than most other tax-favored retirement accounts: $57,000 or 25% of income— whichever is less—as of 2020.
Of course, when determining which type of plan to start, it is helpful to know your retirement number. How much money do you need to have to retire? For help answering that question and to receive personalized guidance on retirement plans, click here to send an email to Kim. If you are thinking about starting a retirement plan in 2020, click here to listen in to this week’s podcast.
Securities offered through J.W. Cole Financial, Inc. Member FINRA/SIPC. Advisory services through J. W. Cole Advisors, Inc. (“JWCA”). Keystone Capital Management Group, LLC and JWC/JWCA are unaffiliated entities.