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IRA Vs 401k - an exceptionally Simple Small Business Retirement Plan Decision

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REVIEWS OF LEAR CAPITAL GOLD IRA
The question of IRA vs 401k leaps in your thoughts when setting up a small enterprise retirement plan. Do you know the differences between plans? Precisely what does the Internal Revenue Code allow and restrict? Why should you even care? Because if you sell fixed indexed annuities and even capitalize on one of the hottest specialty markets going today (starting retirement plans for small businesses with 1 to 9 employees), you need to brush up on IRA vs 401k and also other important considerations.


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First, take into account that a small business retirement plan, now as part of your, is the best way to defer huge amounts of tax-deductible dollars. Because of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), self-employed taxpayers now have unprecedented incentives to save lots of for retirement. An enterprise owner's decision is fairly literally whether to keep company profits... or take them to Uncle Sam.



OWNER GETS MORE



It's no secret the allure of your small business retirement plan is directly related to benefits offered to the owner. The greater the owner's share in the overall plan, the larger the interest. Before the new tax legislation, restrictions on owner's benefits in small plan design often led to even fewer benefits for your employees. But the tools are now in place to ratchet up the owner's benefits yet still create a workable insurance policy for the employees. So, when the plan be an IRA or even a 401k? Let's examine IRA vs 401k separately.



SIMPLIFIED EMPLOYEE PENSION



Most effective small business retirement plan for self-employed taxpayers and the easiest to create and maintain is the Simplified Employee Pension (SEP). You may establish a SEP if you earn self-employment income, whether or not you have employees. A SEP is an Individual Retirement Account (IRA) and if maintained for more than one individual becomes a group of IRAs.



All contributions to some SEP are tax deductible as a business expense. As an IRA the plan's earnings are not taxed until they are withdrawn at retirement. As always, withdrawals prior to age 59 ½ with this particular and other plans get in a 10% penalty. A SEP-IRA won't permit loans or salary deferral contributions. Also, the average person annual contribution limit for 2006 may be the lesser of 25% of compensation or $44,000, and contributions could be reduced or skipped altogether in lean years.



INDIVIDUAL 401(k)



Another handy tool inside the EGTRRA toolbox is the Individual or Solo 401(k). This small enterprise retirement plan is ideally designed for businesses in which the owner or owners (along with their spouses if working with the business) are the only employees. The main reason for opening a one-person 401(k) may be the higher contribution limits allowed, together with fact that contributions provide revenue generated with the business.



The maximum tax-deductible employer contribution is 25% of gross eligible payroll. For 2006 the absolute maximum effective salary deferral contribution for employer plus employee is $44,000 and also a catch-up contribution of $5,000 for folks age 50 and over. Loans are permitted be subject to limits and rules, and paperwork could be just a filing from the streamlined IRS Form 5500-EZ when plan assets exceed $100,000.



NEVER A BETTER TIME



The modern tax law produces a multitude of opportunities using more than 60 new provisions to strongly encourage the startup and funding of your small business retirement plan. Variations in plan design allow possibilities to suit independent contractors, sole-practitioner professionals, small retail owners -- virtually any type of small business imaginable. Answer the question of IRA vs 401k and you're on your way.



For small businesses proprietors in search of large tax breaks, it doesn't get any much better than this. There has never been a better time than now to convert current taxes into assets, defer tax payments, and generate considerable amounts of retirement income. As well as for you as the fixed indexed annuity specialist, this market is virtually untapped.

 

Posted Apr 06, 2015 at 8:22am

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