Owners of small businesses have a couple choices for what type of small business retirement plan to set up.
Simplified employee pension plans can be established as a personâ€™s retirement account or annuity. For numerous years this was the initial option of retirement plans for most of the owners of small businesses because the amounts are comparatively low and the donation limits are greater than those for some other kinds of plansâ€”till $46,000 or 25 percentage of recompense in 2008. The employer must make shares on the sake of all employees who are at the least 21 years old and have worked on at the least three of the last five years for the company.
The latest type of small business retirement plan is sometimes known to as a solo 401(k). It is preferred by self-employed individuals without any employees because it admits the company to make a share of equal to $15,500 as an elective deferral. This share is additionally to the profit-sharing donation of adequate to the $46,000 or 20 percent of final business income granted in a SEP-IRA. Solo 401(k) retirement plans can also insure the better half of the business owner.
Some of the companies with at the least one and not greater than 100 employees pick a simple retirement plan for self employed because these plans admit employees to go for elective contributions. The employer can pick either to share 2 percent of the employeeâ€™s recompense or to equalize employeesâ€™ shares up to 3 percent of recompense. These plans have lesser share limitations ($10,500 per employee) and must be establish between January 1 and October 1, except for any new businesses. While this plan restricts employersâ€™ financial responsibilities, they also restrict owner-employeesâ€™ shares to their own plans.
The money given to the small business retirement plan, and deduced in accounting corrected gross income, canâ€™t be higher than the money utilized to calculate self-employment tax on Schedule SE. If the business is integrated, the money given canâ€™t be greater than the amount of taxable income reported on their W-2.
If the business is on a financial year but the small business retirement plan is on a calendar year, never try to separate the plan share into two portions to lock with the businessâ€™s financial year. Deduce the whole share on the business tax comeback that insures the close of the calendar year.