SEP IRA

Archive for the ‘Retirement Accounts’ Category

Choosing Roth IRAs or 401k plans is often required for not only employees thinking about retirement planning, but also for small business owners setting up retirement plans for themselves, whether or not they have employees. If the latter situation sounds like you, then you’ll very likely have many questions pertaining to what the IRS Code allows and restricts for your type of business.

The benefits to be had by choosing the right plan for your business are very attractive, so this is not a decision to be taken lightly. Consider for a moment that a small business retirement plan, now more than ever, is the best way to defer large amounts of tax-deductible savings.

Thanks to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), self-employed taxpayers now have never-before-seen incentives to save for retirement. Quite literally, now is the best time in the U.S. for almost a century for the average employee to start saving money.

Converting taxes into assets, deferring tax payments, and generating large amounts of retirement income are all easier to do now, and more effective too.

A small business retirement plan is directly related to benefits available to the owner of the business. For small business owners in search of large tax breaks, it doesn’t get any better than this, because the greater the owners’ share of the overall plan, the greater the interest will be.

Before the new tax laws were passed, restrictions on owners benefits in small plans often resulted in even fewer benefits for the employees. But the new laws are much more fair. They put the tools in place to enlarge the owners’ benefits and still create a workable plan for the employees.

The new tax law creates a many opportunities with more than 60 new provisions to encourage your small business retirement plans’ growth. Variations from plan to plan allow for opportunities to suit small retail owners, independent contractors, sole-practitioner professionals… Virtually every type of small business imaginable.

The fact is that there are too many investment vehicles to even be named in an article, much less described. Even for a specific segment like Small business owners. Keeping up with the plan changes like the EGTRRA act will put you far ahead of the game when it comes time to choose.

For the latest plan changes, and of course descriptions of each plan type suitable for small business owners, visit the Roth IRA information website at:http://www.roth-iras.info to learn more about your Small Business Roth IRA and 401k options.

The IRA rules for an S corporation owner to establish a SEP IRA, SIMPLE IRA, Keogh plans, or other retirement plans for the employees are somewhat more restricted. However, S corporation owners are encouraged to establish any of retirement plans for the employees such as the SEP IRA, SIMPLE IRA, Keogh plans, Money Purchase, Profit Sharing, and 401k.

What earnings can an S Corporation owner use to calculate his/her retirement plan contributions?

In order for an S corporation to establish a retirement plan (SEP IRA, SIMPLE IRA, Keogh plans, Money Purchase, Profit Sharing, etc.) on behalf of a shareholder/employee, the shareholder/employee must be receiving compensation (i.e., W-2 wages) from the S Corporation.

How are the flow through income in S corporations effect SEP IRA, SIMPLE IRA, and Keogh plan contributions?

The flow-through income (S Corporation net earnings) from the S Corporation taxed to the shareholder is not considered compensation and is not subject to self-employment tax. Thus, this flow-through amount cannot serve as the basis for a retirement plan Contribution.

All of the net earnings of the S Corporation other than W-2 wages are “deemed” distributed and taxable to the shareholders each year whether or not amounts are actually distributed. The nature or type of the earnings flow through is the same as it was to the S Corporation.

S Corporation shareholders have some degree of discretion in characterizing income either as salary or flow through. Any amounts a particular calendar year shown as salary are subject to Social Security and Medicare taxes of up to 15.3%.

• Roth IRAs and 401ks for Small Business Owners