You may be asking
yourselves, “Why even start any retirement plan like a SEP or Simple or even an
IRA when I have the value of my business as a source of retirement income?” I mentioned this before but it’s
worth repeating.
Any retirement plan should
be based on a three-legged chair.
You first have Social Security, for folks not self-employed a company
sponsored pension plan (those with their own business it’s the value of their
business) and the third tier is Personal Savings. Why it’s crucial for the business owner to have
personal savings in the form of retirement is because you may simply want to
leave it to your children as a Legacy.
You may also not have a ready market to sell your business. Moreover, if you did have a willing buyer,
his value and your value of the business might not exactly coincide. Thus, your own retirement plan in addition to
the value of your business helps.
We’ve mentioned the SEP
and SIMPLE and even a Solo 401(k) as options.
Let’s say you do not want to include employees so that would eliminate
the SEP and SIMPLE. Let’s go further and
say you don’t want a Solo 401(k). You
still always have the “Good Old IRA”.
Maximum allowable
deduction this year is $5,500 and an additional $1,000 ($6,500) for those over
Age 50. All amounts are tax-deductible
and grow tax-deferred. There is a 10% penalty for early withdrawal and you must
begin taking withdrawals at Age 70 and ½.
A few fine points bear
mentioning. If your spouse is employed
and covered by a pension plan then your contributions begin to phase-out. It’s wise to consult your accountant and/or a
financial advisor but the phase-out begins at $98,000 to $118,000. Your IRAs can also be rolled over into one
account. As there are many options, it
is always good to evaluate your IRA at least once a year.