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Retirement Savings For the Small Business Owner and the Sixty-Five Percent Club

by gbaf

One thing to look for when you are evaluating retirement plans is what the employer offers to their employees in the way of retirement savings. Usually what happens is that the employer offers a pre-tax defined contribution option. This means the employee contributions are taxed at the rate of the contribution, not the investment growth rate. It is recommended that employees take full benefit of this type of retirement plan. It provides the best investment return and there is less paperwork to deal with. Most employers will let the employees contribute what they can afford and will match some of the contributions up to a certain amount.

Another important aspect to consider when looking for the best retirement planning options is if there is an annual contribution option. Some employers only offer a set amount each year, while others have a larger choice in how much to contribute. There may also be an option to invest in a self-directed IRA. These types of IRA’s allow the investor to invest for their own retirement and the money grows tax deferred until it is withdrawn.

An example of an employer offering a retirement savings plan that has a high profit potential is a broker-dealer type of institution. They typically have an arrangement with a large financial institution to provide their customers a service, and in return, the institution pays a commission. When an investor purchases stock from the broker, they are usually required to invest a certain percentage of their paycheck into the mutual fund. It is important to note that this type of retirement savings account must meet the following federal requirements.

All 401(k) plans are subject to the matching program. If your spouse and you have a retirement account and you begin saving together, you will both qualify for the matching program. The way this works is that the more you save, the larger the tax-free income you will receive. If you file joint returns, both you and your spouse will need to meet the following retirement savings threshold requirements.

Married Couples The first requirement for retirement savings for married couples is that the individual retirement account that they maintain must be funded with at least one trade or bond account. The second requirement is that the married couple must also maintain an individual retirement account within the marital residence. In addition, they must ensure that their tax-free incomes are equal. For individuals who do not qualify for the above stated requirements, filing joint returns will allow them to participate in the self-directed option. Individuals can choose which funds from their pension plans and individual retirement accounts they want to contribute.

Single Individuals As stated above, filing joint returns will allow married couples to contribute to their retirement savings plan. However, single individuals cannot participate in the self-directed option. Instead, they must make contributions to pooled accounts, including those funded through IRAs and other retirement accounts. The contributions made to these accounts must be invested according to the requirements of the particular plan. These contributions will earn interest. They cannot be withdrawn until the investor has earned a specific amount from his or her investments.

Retired Filing Couples Once a person has accumulated sufficient income from his or her previous work experience, it is time to take the next step toward establishing their nest egg for retirement. This next step, however, requires more upfront cash contributions than previously mentioned. The contributions made during the year of employment must be enough to pay the current wages and other bills including home mortgage, car payments, credit card payments, and any other outstanding debts such as credit cards, utility companies, and loans. Couples who have saved up a substantial nest egg for retirement must take the initiative to start saving for their eventual financial future.

Small Business Owner Starting a business is a costly endeavor. Most small businesses fail in the first two years. As a result, it is important to make contributions to a retirement plan as early as possible, preferably as soon as the business is established. If you are a business owner, it is important to consider using a part-time job to make additional, supplemental retirement income. You can do this by providing services from your home.


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