• July 2012

Don't Let Working for Yourself and Saving for Retirement Be a Non Sequitur

By Bryan Beatty, CFP®
Certified Financial Planner™
Partner, Egan, Berger & Weiner

When you run your own business, you are a master juggler—someone who as “E-Myth” author Michael Gerber says not only works on their business, but in the business.

Too often, however, business owners get so overwhelmed with growing their company that they neglect personal financial-planning issues.

Why would you want to move the goal of saving for retirement up higher on your priority list?

  • Proper retirement planning can enhance the business because it helps you manage risk.
  • It also will make you more confident in the daily risks that are essential to your growth.
  • A strong financial plan has the potential to make your business more attractive to quality employees.
  • Since small business owners and their employees are more responsible today than ever before to save for their own retirement plans, saving plans provide a win-win situation for everyone.

The key is selecting the proper plan for you and your company.

Following are a few options to consider:

  • A Traditional IRA is a potentially tax deductible investment account allowing annual contributions up to $5000 ($6000 if over 50) that can be invested in stocks, bonds or mutual funds as well as many other investments tax deferred. Withdrawals beginning at age 59 ½ are available without early distribution penalties. The money is subject to required minimum distributions (RMD) beginning at age 70 ½. Deductibility depends on family income levels and spousal qualified plan eligibility if they also work. Click here for more information in IRS Form 590.
  • A Roth IRA is similar to a traditional IRA but the contributions are always after tax dollars. The growth in the Roth IRA is tax deferred. Distributions are tax free if certain conditions are met. For tax free distributions of growth both tests must be met. (1) had a Roth IRA for 5 years and (2) one of the following (a) age 59.5, (b) death © disability (d) First time home purchase ($10,000 lifetime maximum. A Roth IRA is not subject to required minimum distributions during the owner’s lifetime. Beneficiaries are subject to RMD’s. Contributions are limited depending on family income levels. Click here for more information in IRS Form 590.
  • A SEP IRA is a Simplified employee pension IRA. It allows for a potentially larger contribution capability. Contributions of up to $50,000 are possible in 2012 and indexed for inflation depending on adjusted gross income and business schedule filings. (Reference IRS.gov pub 560). Contributions made by the business owner have contribution requirements for eligible employees that may or may not make this plan a viable option. Click here for more information in IRS Form 560.
  • A SIMPLE IRA is a salary incentive matching plan IRA. SIMPLE IRA plans can provide a significant source of income at retirement by allowing employers and employees to set aside money in retirement accounts. SIMPLE IRA plans do not have the start-up and operating costs of a conventional retirement plan like a 401k. The amount the employee contributes to a SIMPLE IRA cannot exceed $11,500 in 2012. Click here for more information in IRS Form 560.
  • A 401k plan is a plan that offers a little more flexibility than a SEP where it comes to contributions for employees. It allows for up to $50,000 (which includes an additional $5,500 if your over 50), but is less restrictive when providing contributions in matching formula to employees. This design allows and encourages employees to get involved saving their own money too. Click here for more information in IRS Form 560.

These are not the only options for retirement saving, but they are the most common. The correct plan for you may be one of these, or something more specialized.

And remember, certain limitations, restrictions, and liabilities come with creating and maintaining a retirement and savings plan for your company, so be sure to consult your tax and investments adviser.

Coming next month: It has been highly publicized that Social Security funds will likely not be enough for most people to retire on. In fact, for the Millennial generation (those born roughly from 1982–2003), there is a real likelihood that coming changes will put more responsibility on the individual for retirement savings and planning. To help clear up the confusion, my business partner Michael Egan will discusses “The Past, Present, and Future of Social Security” in our August Retirement column. Stay tuned for that.


About Bryan D. Beatty

Bryan Beatty is a Certified Financial Planner TM and partner at Egan, Berger & Weiner LLC, which is based in Northern Virginia. With more than 20 years of experience in the financial industry, he is a principal of this independent financial services firm, which is experienced in all aspects of investment and retirement planning.

An active member of the Financial Planning Association’s Career Development and College Outreach Committees, Beatty is a graduate of the University of Maryland with a BS in Finance. He was the former president of the Finance, Banking and Investment Society, and he is an avid musician who plays guitar and writes music in his spare time, and occasionally plays area venues. Originally from Baltimore, Beatty has lived in Northern Virginia since 1992.

For more information about Beatty’s services, send him an email at bbeatty@ebwllc.com.

For additional information about Egan, Berger & Weiner, LLC, visit www.ebwllc.com.

Securities and Investment Advisory Services offered through Voya Financial Advisors, member SIPC. Egan, Berger & Weiner, LLC is not a subsidiary of nor controlled by Voya Financial Advisors.

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