Here’s How Business Owners Can Help Grow Their Nest Eggs Faster
More than 25% of business owners have not estimated how much they will need for retirement, according to 2012 research by The American College. Many think they’ll just be able to sell their companies and live off the proceeds. Fortunately, a range of retirement programs are available that can help you set aside more money each year than with traditional and Roth IRAs.
Even if you begin saving relatively late in your career, you can use one or more of these plans to help grow your nest egg faster. Though some may require you to contribute to your employees’ savings along with your own, they provide a way to accelerate your personal savings while bolstering employee incentive packages at the same time.
Which plan you choose will depend on the amount you can contribute and your personal retirement goals. Discuss your options with your accountant or financial planner.
The Savings Incentive Match Plan for Employees (SIMPLE) IRA is suitable for businesses with 100 or fewer employees who earned $5,000 or more in compensation in the prior year. As the name suggests, it’s easy and affordable to set up this type of IRA. In 2013, the plan permits an annual contribution of up to $12,000 compared to $6,500 for traditional and Roth IRAs. You can add up to $2,500 per year in “catch-up” contributions if you are 50 or older at the end of the calendar year.
The IRS website has more information about establishing and operating a SIMPLE IRA plan.
The Simplified Employee Pension (SEP) IRA is available to companies of all sizes. It is as affordable and easy to set up as a SIMPLE IRA. In 2013, you can contribute up to 25% of your net income or $51,000, whichever is less. Contributions aren’t mandatory, but you must contribute the same contribution rate (percentage) to all employee accounts.
Learn more about SEP IRA plans at the U.S. Department of Labor’s website.
In a 401(k) plan, contributions are automatically deducted from employee paychecks, typically before the compensation is taxed. Employers often “match” employee contributions but are not required to do so. In 2013, personal contributions are capped at $17,500, plus a $5,500 catch-up contribution if you qualify. The money can be invested in one or more funds provided by the plan. Employer contributions are deductible on the employer’s federal income tax return.
The IRS website has a resource guide to help you understand how to set up a 401(k) plan.