Momentum - Business to Business Online Magazine MOMENTUM September 2019 | Page 34
FINANCIAL FOCUS
KRISTI TREVINO
Financial Advisor
Edward Jones
www.edwardjones.com
Business Owners:
You Need Your Own
Retirement Plan Article 3 – Aug. 12, 2019
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your earnings grow tax-deferred until withdrawn.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
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MOMENTUM
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
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.