Self Employed Retirement Packages - Necessary Planning For Your Small Business Future

Venturing out on one's own to operate an independentdeductible IRA, which provides that any spouse making
business can provide a sense of liberation from thecontributions to an employer based retirement plan can
daily 9 to 5 grind that many find irresistible. While thosereceive supplement contributions of an additional
bold enough to launch an enterprise of their own$5,000 from their spouse, if their combined adjusted
typically live and breathe every detail of their businessgross income is under $167,000.
endeavor, such attention may not always extend toNot unlike conventional corporate retirement plans,
the area of retirement planning. Thus, it is critical forKeogh plans can be of a profit-sharing nature, or of a
every independent business owner to learn as muchdefined benefit nature. Keogh plans can result in tax
as possible about available self employed retirementdeductions if they are put into place prior to the end of
packages.the tax year. Once formalized, plan contributions may
Often considered to be one of the few negatives ofbe made up until the date of any tax filing extension
being one's own boss is the substantial amount of selffor that tax year. In the case of a profit-sharing Keogh
employment taxes that must be paid each year.plan, contributions are permitted up to a percentage of
Balancing that drawback, however, are the generousincome derived from self employment or received as
rules pertaining to self employed retirement packagescompensation from one's own company, up to
that can permit independent businessmen and women$49,000. Plan documentation must be drafted in the
to allocate far more toward retirement than would beplan's first year, and the IRS requires reports to be filed
feasible for a conventional employee or wage earner.on a yearly basis. Defined benefit Keogh plans are
The tax advantaged plans available to such individualsmeant to produce a predetermined benefit amount
include Roth IRAs, Keogh plans, simplified employeeduring retirement, which can be as high as $195,000. In
pensions (SEPs), and solo 401(k) plans.these plans, documentation must be drafted in year
Roth IRAs are often seen as a supplementalone, and annual IRS reporting is necessary.
retirement plan for self employed individuals, as theyThe services of an actuary will be required in order to
can be implemented in addition to one of the otherdetermine the required allocation for a given year, and
types of self employed retirement packages. Whilewill be based on factors such as years remaining
funds allocated in this manner are nondeductible, thebefore retirement, desired benefit amount, income level
earnings they build are tax-free, and are subject to noand estimated investment returns. These plans permit
additional tax upon withdrawal. Contributions to suchlarger contributions than any of the other self
plans are limited to $5,000 for individuals and $10,000employment retirement packages, and therefore may
for married couples, subject to relatively high incomemake sense for those closer to retirement age.
phaseout levels. Another IRA option is the spousal