Momentum - Business to Business Online Magazine MOMENTUM February 2020 | Page 12

INDUSTRY SPOTLIGHT - FINANCIAL LITERACY & TAXES
ROY SALAS
Financial Advisor
Edward Jones
www.edwardjones.com/roy-salas
Business Owners: You Need
Your Own Retirement Plan
A
s a business owner, you can’t afford to
ignore your competition. You can’t afford
to miss out on the trends affecting your
industry. You can’t afford to alienate
customers. And here’s one more item
to add to the list: You can’t afford not to create a
retirement plan for yourself.
Of course, you might think that, one day, you’ll simply
sell your business and live off the proceeds. But selling
a business isn’t always simple, and there’s no guarantee
you’ll receive enough to pay for a comfortable
retirement – which is why you should strongly consider
creating a retirement plan now.
Here are some of the most widely used plans:
• SEP-IRA: You can contribute up to 25 percent of your
compensation — as much as $56,000 in 2019 — to a
SEP-IRA. Your contributions are tax deductible and
your earnings grow tax-deferred until withdrawn.
This plan offers you significant flexibility in making
contributions for yourself and your employees.
Plus, as an employer, you can generally deduct, as
business expenses, any contributions you make on
behalf of your plan participants.
• SIMPLE IRA: In 2019, you can put in up to $13,000
— or $16,000 if you’re 50 or older — to a SIMPLE
IRA. As is the case with the SEP-IRA, your earnings
grow tax deferred. You can match your employees’
contributions dollar for dollar, up to 3 percent of
compensation. If you work for yourself, you can
combine employee and employer contributions,
so if you use the 3 percent matching rule, and you
earn enough to fully match employee contributions,
you can put in up to $26,000 per year (or $32,000 if
you’re 50 or older). Alternatively, you could contribute
2 percent of each eligible employee’s compensation
each year, up to a maximum of $5,600, regardless of
whether the employee contributes. Contributions to
your employees are tax deductible.
• “Owner-only” 401(k) plan: If you have no employees
other than your spouse, you can establish an “owner-
only” 401(k) plan, which functions similarly to a 401(k)
plan offered by a large employer. Between salary
deferral and profit sharing, you can contribute up
to $56,000, in pre-tax dollars, to your owner-only
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401(k), or $62,000 if you’re 50 or older. Like a SEP-
IRA and SIMPLE IRA, a 401(k) provides the potential
to accumulate tax-deferred earnings. However, you
could choose to open a Roth 401(k), which can be
funded with after-tax dollars. With a Roth 401(k), your
earnings can grow tax-free, provided you’ve had
your account at least five years and you don’t start
taking withdrawals until you’re at least 59-1/2.
Which plan is right for you? The answer depends
on several factors, such as whether you have any
employees and how much money you can contribute
each year. But all the plans mentioned above are
generally easy to establish, and the administrative costs
are usually minimal. Most important, any one of them
can help you build some of the resources you’ll need
to enjoy the retirement lifestyle you’ve envisioned. To
select an appropriate plan, you may want to consult
with your tax and financial advisors.
In any case, don’t wait too long. Time goes by
quickly, and when you reach that day when you’re a
“former” business owner, you’ll want to be prepared.
This article was written by Edward Jones for use by
your local Edward Jones Financial Advisor.