you have a small business and are still stinging from
the income taxes you paid Uncle Sam, you can take a
simple step now that will get you through tax time in
better shape next year.
this simple step will take care of one of the big
mistakes small business owners tend to make: Failing to
save adequately for retirement.
are often so busy tending their businesses they ignore
retirement. Others simply put every cent they have into
the business. That might be good for growing the
business but not necessarily good for coming up with
spending money in retirement.
can also mean business owners end up paying more in
need a balance between investing in the business today
and investing in their future financial
well-being," said Lule Demmissie, managing director
of retirement at TD Ameritrade.
40 percent of self-employed people donít save
regularly for retirement and 28 percent donít save at
all, a TD Ameritrade national survey found.
employees, business owners can put money into a
retirement savings account at work and take a tax
deduction. Some savings plans allow you the flexibility
to save a lot at times of plenty and cut back when cash
isnít coming as expected.
your budget allows savings to automatically roll into an
account each month. If your plan is to save whatís
leftover, chances are it wonít be there. Thatís true
whether your business is making a lot or a little.
the danger in waiting to save.
a self-employed 25-year-old putting $30 into a
retirement account that invests in a total stock market
mutual fund such as the Vanguard Total Stock Market
Index Fund in a retirement fund thatís not taxed.
Throwing $30 a week automatically into that fund will
produce about $1 million at age 68 if the fund averages
a 10 percent gain a year.
an entrepreneur who doesnít save a thing until age 45
and puts $30 a week into that same fund would end up
with less than $130,000.
get the most from your savings, you want a retirement
fund protected from taxes so your money grows
effectively. For sole proprietors, the best approach
would be to open a solo 401(k) or SEP IRA, according to
Mike Piper, a Manitou Springs, Colo., certified public
accountant, who blogs about these options at
a solo 401(k), you are allowed to save up to $18,000 a
year as an individual, or $24,000 if you are over 50.
as an employer of yourself, you are allowed to add extra
savings to the fund, up to $53,000 a year with a solo
401(k) or SEP IRA, Piper said. Besides a tax deduction
for the savings, your money would grow year after year
without being taxed until removed.
in mind that you canít save more than youíve made in
the business and you must apply a formula related to the
business profit and your self employment tax. This
calculator will help: https://personal.vanguard.com/us/SbsCalculatorController.
have plenty of time to open a solo 401(k) before the end
of the year. Itís a simple process with help from
mutual fund companies and doesnít require accountants
or lawyers until you have more than $250,000, Piper
the other hand, if you procrastinate through yearís
end, you still have until tax time in April to open a
opening a 401(k) or SEP IRA is an easy process for a
sole proprietor, itís more complicated if you have
employees, you are required to offer them the
opportunity to save in the same plan as yours. Also, if
you provide yourself a large sum from company profits,
you must also include your employees, Piper said. In
that case, the best approach might be to get the help of
a certified public accountant or attorney.