Women Business Owners – Planning for
Retirement
By Candace G.
Kaplan CFP®, RHU, ChFC
Business owners have a lot on their minds. There are all the administrative
tasks a business entails – billing, collections, keeping accounts, payroll,
taxes and so forth. There’s marketing and selling. Hiring and supervising
employees. And a thousand more.
As tough as it is to keep on top of all these matters, many women who
own businesses have an additional set of responsibilities – caring for their
homes and their families. So it’s no wonder that women often relegate the
future to a back burner, saying “I’ll take care of it when I have the time.”
If you’re a business owner and haven’t made provisions for your
retirement, it’s time to move it off the back burner. The recent changes in
the tax law have created several new opportunities to save money for
retirement while saving on taxes now. The sooner you start saving for
retirement, the more you’ll have when the day comes. After all, you work hard
to make your business a success—make sure your business works just as hard to
make your retirement a success.
Retirement Planning Options for the Owner-Only Business
The
bad news about a one-person business is that it will support you only as long
as you continue to work. The good news is that there are several excellent
retirement options that make sense for a one-person business, including SEPIRA,
SIMPLE IRA, profit-sharing and/or money purchase plans.
With an Owners 401(k) you can put away far more for retirement than
with other types of plans. Because it combines a profit-sharing and 401(k)
plan, the Owners 401(k) allows you to save up to the combined limit for each
of these types of plans. This means you can save up to $44,000 per year in
2006 ($49,000 if you are aged 50 or over) for yourself, plus additional
savings for a spouse or certain family members who may work for you. It covers
only the owner(s), their spouse, and their family, so it is not appropriate if
there are common law employees.
Example:
Sara S. is 47 and made $145,000 in salary in her interior design business in
2006. Her
business is an S-corporation and she is the only
employee. By using an Owners 401(k), she can save an additional $15,000
towards her retirement and defer taxes on the total amount.
Without Owners 401(k)
Maximum profit-sharing = $29,000
Total
saved for retirement = $29,000
With Owners 401(k)
Maximum profit sharing contribution = $29,000
+
Maximum 401(k) contribution = $15,000
Total
saved for retirement = $44,000
Not
only does the Owners 401(k) enable you to save more for retirement, but it
also further reduces your taxable income, saving you money now.
Choosing Among Different Types of Retirement Plans
If you have employees and wish to save for your own retirement, you will
generally need to cover your qualified employees, as well, although some types
of plans permit you to specify whether part-time or new employees are
eligible. There are advantages and disadvantages to each type of plan, so you
should talk to a financial professional as to which type of plan is most
suitable for your situation.
Here are some questions you may want to consider when you consult with
your advisor:
• How complicated and/or expensive is this plan to set up and
maintain?
Some plans require more paperwork than others, including annual
filings. The simplest plans to administer include the SEP-IRA, SIMPLE IRA and
Owners 401(k).
• Which plans allow me to contribute the most to my own
retirement account?
The plans that
allow the largest contributions include SEP-IRA, combined profit-sharing and
money purchase plans and Owners 401(k).
• Can I borrow from my retirement account?
Some plans permit
borrowing, depending on the terms of the plan agreement and up to certain
limits. These include profit-sharing and money purchase plans, Owners 401(k)
and regular 401(k).
Whatever the plan you establish, the important thing is to begin
saving for retirement now. Put it at the top of your “to do” list and speak to
your financial advisor today.
Note:
AXA Advisors does not provide legal or tax advice. Please consult your tax or
legal advisor regarding your individual situation.
Candace G. Kaplan CFP®, RHU, ChFC of Kaplan
Financial Group offers securities through AXA Advisors, LLC (member NASD, SIPC)
1290 Avenue of the Americas, New York, NY 212-314-4600 and offers annuity and
insurance products through an insurance brokerage, AXA Network, LLC and its
subsidiaries. AXA Advisors and AXA
Network are affiliated companies. Kaplan Financial
Group is not owned or operated by AXA Advisors or AXA Network. GE-34811
(02/06) (Exp.02/08)
