Thursday 13 December 2012

Why start a business retirement plan?





Starting a business retirement plan can be a complex process for small business owners in particular as they need to factor in issues such as multiple sources of retirement income, special tax considerations and succession issues. 

Beginning a business retirement plan will help make deductible contributions for 2012. Listed below are some compelling reasons for you to start a retirement plan:

Reduce the income tax your business pays, as plan contributions for the business owner are deductible as a business expense. Income contributed to a tax-deferred retirement account reduces your personal taxable income for the year. For instance, if $20,000 has been contributed in 2012, there is no need to pay income tax on that amount that year. Income tax is deferred until money is withdrawn from the account.
Minimize your exposure to the new 3.8% Medicare tax on net investment income. Effective January 1, 2013, individuals with modified adjusted gross incomes over $200,000 [$250,000 if married filing jointly, $125,000 if married filing separately) will be subject to an additional 0.9 percent HI (Medicare) tax. The additional Medicare tax is also applicable for the self-employed. Contributing to a tax-deferred retirement plan will help minimize exposure to tax.
Investment earnings grow tax-deferred. While in a tax-deferred retirement account, investment earnings are exempt from tax, enabling investments to potentially grow faster than in a taxable account.
Your plan not only helps secure your future, it may be the primary way your employees can help secure theirs. This is important given that more people will likely be relying on employer-sponsored plans as Social Security becomes less certain, health care gets more expensive, and life spans grow longer.
You can contribute a greater amount each year than to a personal IRA. Contributions to a personal IRA are limited to a maximum of $5,000 in 2012, while going up to $50,000, between employer & employee contributions in the case of some business retirement plans.
Gain access to a Roth retirement account. Unlike personal Roth IRAs, even high-income individuals can contribute to a Roth account at work without any income limits in business retirement plans.
Offering a retirement plan helps make your business competitive when it comes to attracting and retaining good employees.
Retirement assets are generally protected from creditors.
There are potential tax benefits to offering a plan, because plan contributions for the business owner are deductible as a business expense.
What type of retirement plan is the right fit for your business? There are several types to choose from and many small business owners can find the options confusing. For example, some small business retirement plans are better for sole proprietors while others may be more appropriate for businesses with up to 100 employees.

With help from your financial and legal advisors, you can choose a plan which best suits your business retirement plan needs and objectives. 


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