But seriously - options for self-employed and very small business owners would be good. I'm guessing that many readers might be self-employed."
Thanks for the question Diane. I wrote a series on how the self-employed could save on December 2, 2005. The articles are available in the archives. I included brief articles on Simplified Employee Pensions or SEPs, the Uni-k which is also known as the Solo or Individual 401(k), Keogh Plans, and SIMPLE or Savings Incentive Match Plan for Employees of Small Employers.
I haven't addressed VULs or Variable Universal Life insurance policies. There is a good article on them at http://invest-faq.com/articles/ins-vul.html . These are life insurance policies where you choose how the premiums are invested from a pool of funds and where the cash value and the death benefit can fluctuate. If I were to buy a VUL I would make sure it paid out both the cash value and the death benefit.
Real Estate rental properties can be fine investments. You can get capital gains and current income. The biggest drawback is the significant management attention they require. If you have the skill and patience for that or make enough on the property to afford a manager it can be a great investment. I don't have either, so I invest in Real Estate Investment Trusts for my real estate exposure.
I endorse your plug for MSAs. What a great benefit and one more way to save tax advantaged dollars. MSAs became Health Savings Accounts on Jan. 1, 2004. There is a good article on HSAs at http://www.myhsabenefit.com/documents/HealthSavingsAccounts.pdf .
I hope this helps, now go out and make some money!
Planning for a Retirement Plan
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For those of you who choose to run your own small business, there are many important business decisions you must make. The decision as to whether or not to offer a retirement plan to the employees of your small business is certainly one of them. Adding a retirement plan can provide you and your current employees with an opportunity to save for a financially secure future, and it may also help you attract top-notch new employees.
Plan Features
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Here is a sample of some popular retirement plans, suitable for small businesses, which Larry has already discussed in this and previous postings within the archives of this blog. One of these plans may be just right for you, and seeing how some of their major features compare might help you to decide:
SEP (Simplified Employee Pension):
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Annual employer contributions are discretionary. Employees can NOT contribute pretax to a newly established SEP. However, the plan CAN be set up to allow employees to choose their own investments. IRS Form 5500 annual filing is generally NOT required.
SIMPLE (Savings Incentive Match Plan for
Employees):
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Annual employer contributions are required. Employees are allowed to contribute pretax to the plan. It can also be set up to allow employees to choose their own investments. For a SIMPLE IRA, IRS Form 5500 annual filing is generally NOT required, but for a SIMPLE 401(k), IRS Form 5500 IS generally required to be filed annually.
401(k) Profit Sharing:
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Like a SEP, annual employer contributions are discretionary. Like a SIMPLE, employees can contribute to a 401(k) Profit Sharing plan pretax. And this plan, like the others, can be set up to allow employees to choose their own investments. An IRS Form 5500 is generally required to be filed annually.
Funding Differences
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How the plan is funded is an important, and a potentially defining, issue. A SEP plan is completely funded by the employer, so it is generally a good choice for a business that has a small, part-time staff and no other retirement plan. (Employers do have the flexibility to skip contributions if they want to).
Required annual employer contributions make the SIMPLE plan a good option for a business that has reliable, positive earnings. Although considerably more complex to establish and administer, the 401(k)/profit sharing plan is an attractive alternative because employees can contribute, and the employer is not REQUIRED to contribute every year.
It's Still Not Too Late
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If you decide a SEP is the plan for you, and you've obtained a filing extension on your 2005 tax return, you have until the extended due date of your return to establish and fund a new plan and claim a contribution deduction for the 2005 tax year. (For an unincorporated business, the deadline is October 16, 2006).
These are just some of the many points to consider if you're thinking of starting a retirement plan. Call your CFP or CFA to discuss these details (and more), before acting upon any information provided in this comment.
Posted by: Bob Hansell | July 5, 2006 1:08 PM | Permalink to Comment