for your small business
you own a small business, you’re always thinking about “today.” How can
you get more customers today? Is your cash flow sufficient for today?
What are your competitors doing today? However, it’s also important not
to lose sight of tomorrow. Specifically, you need to make sure you’re
building sufficient financial resources to enjoy a comfortable retirement.
To help you do just that, you need the right small-business retirement
And since it’s the
beginning of a new year, it’s a perfect time to set up the right plan
for your needs. You have several attractive options, all of which offer
some key benefits, including tax-deferred earnings, the ability to make
pretax contributions and a variety of investment choices.
Let’s take a quick
look at some of the most popular retirement plans for small businesses.
If you have no employees,
or your spouse is your only employee, you may want to consider one of
- SEP IRA —
With a SEP IRA, you can contribute up to 25 percent of your compensation
into the plan, up to a maximum of $44,000 in 2006.
401(k) — If you have an “owner-only 401(k),” you can put in up to
25 percent of your compensation plus $15,000 (in 2006). If you’re 50
or older, you can add an additional $5,000 in “catch up” contributions.
(However, you can’t contribute more than $44,000 in 2006 if you’re under
age 50 or $49,000 annually if you’re 50 or older.) Owner-only 401(k)
plans also can permit larger contributions if your spouse works for
Defined Benefit — This plan may be appropriate for you if you earn
more than $100,000 annually from your business, you are over age 40,
you can commit to contribute for at least three years and you desire
much larger contributions than are possible with the SEP-IRA or the
If you have employees,
you may want to investigate one of these plans:
- SIMPLE IRA
— A SIMPLE IRA is easy to set up and inexpensive to administer.
In 2006, you and each of your employees can contribute up to $10,000
to a SIMPLE IRA (or $12,500 if age 50 or over). Your business is generally
required to match both your and your employees’ contributions, dollar
for dollar, up to 3 percent of their salary, unless you decide to put
in 2 percent of each eligible employee’s compensation.
- Safe Harbor
401(k) — A Safe Harbor 401(k) offers the features of a traditional
401(k), but the amount you can defer from your salary is not limited
to whether your employees contribute. You, as the business owner, benefit
because you can contribute up to the annual maximum ($15,000 in 2006
or $20,000 if you’re 50 or older), regardless of how much your employees
contribute. Your business is generally required to match both your and
your employees’ contributions, dollar for dollar, up to 4 percent of
their salary, unless you decide to put in 3 percent of each eligible
- Safe Harbor
401(k) with Age-enhanced Profit Sharing — Your business can make
additional profit-sharing contributions to a Safe Harbor 401(k) plan.
If you are older than most of your employees, you can structure your
plan so that the contributions going to your account, and to those of
your key employees, are much higher than the percentage going to most
plan is right for you? It all depends on your individual situation. Your
tax adviser and investment representative can help you choose the plan
that’s right for your needs — both “today” and in the future.
Eric Cumley is an
investment representative with Edward Jones in south Everett. He can be
reached at 425-353-2322. Edward Jones is an NYSE-member investment firm
with more than 9,000 offices nationwide.
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