Small business owners have many options when it comes to setting up retirement plans for both themselves and their employees.
Some of the more common retirement plans available to small business owners include Traditional IRA's, SEP-IRA's, and SIMPLE-IRA's, and ROTH IRA's.
Whether a small business operates as a sole proprietorship (self employed individual), a partnership, a Limited Liability Company, or a Regular or an S Corporation, the benefits of contributing to a retirement plan are numerous.
First, the contributions are tax deductible, which lower income taxes. Second, the earnings grow tax-deferred. Third, the business owner is setting money aside for a more secure retirement.
And, to encourage people age 50 or older to save even more for retirement, catch-up contributions are allowed for some plans.
Each IRA generally has its own rules regarding when it must be set up to be effective for a particular year, the maximum contributions and deductions allowed for a given year, due dates for making a contribution, which employee's must be covered under the plan, when required minimum distributions must begin, which penalties may apply for early distributions, and exceptions to the penalty for early distributions.
The tax laws often change each year regarding the specifics for each type of plan, so that the business owner will want to keep current regarding changes applicable to their type of IRA.
All things said, setting up and contributing to a retirement plan each year is a win win situation.
This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
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