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For Entrepreneurs A SIMPLE Plan May Be Best

by: Tim Knox
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Q: I own a small decorating business and I’ll be the first to admit that I don’t know anything about taxes or retirement plans. I’d like to set up a 401(k) or an IRA or some other kind of retirement plan for me and my three employees. What are the various retirement plan options available for a small business owner and in your opinion, which would work best for me?
-- Wanda S.

A: Wanda, I appreciate your confidence in my humble opinion, but asking me for financial advice is like asking Donald Trump for a recommendation on hair care products. I can tell you what works best for me and my business, but you’ll need to do your homework and seek professional advice to figure out what would work best for you. As a side note, I hear that Donald Trump is coming out with his own line of hair care product soon to be called “Big Head.” The formula is 1% mousse, 1% liquid nails, and 98% hot air. It should be a big seller among the high brow, comb-over crowd.

Here’s my best advice on retirement plans: find yourself a financial advisor (or financial planner) who is has experience working with small businesses and have him or her explain the options available and make a recommendation as to the type of plan best suited for you and your business. When I say “financial advisor” I’m not talking about your know-it-all brother-in-law or your accountant. I’m talking about a broker or financial planner (or other licensed professional) who has a proven track record of making his clients money and is an expert on IRAs, 401(k)s, mutual funds, etc.

The best way to find a good financial advisor is to ask for referrals from your most successful friends and associates. Find the richest, stingiest man in town and ask who his advisor is. Meet with several advisors, explain your situation, and ask for their recommendations. You should also make sure the advisor is a good fit for your personality and your business. If all goes well you will be doing business with this person for many years to come, so make sure the relationship feels comfortable to you and that you are confident in the advisor’s ability to manage your money.

Let me give you a quick overview of a few of the retirement plans available to small businesses so you at least have an idea of what’s out there before you start your search for a good financial advisor.

As a small business you basically have three types of retirement plans that you can take advantage of: the Self-Employed 401(k); the Simplified Employee Pension Plan or SEP IRA, and the Savings Incentive Match Plan for Employees or SIMPLE IRA. Each allows you to make pre-tax contributions to the plan, which lets you save for retirement and lessen your taxable income by the amount of the contribution. Your investments also grow tax-deferred until withdrawal.

A Self-Employed 401(k) is an option for self-employed individuals or business owners with no employees other than a spouse. The business can be a sole proprietorship, a partnership, or a corporation, including S corps. You can make salary deferrals to this type of plan of up to $14,000 for 2005.

Next is the Simplified Employee Pension Plan or SEP IRA. A SEP is an option if you earn a self-employed income from a full or part time business, even if you are covered by a retirement plan at your fulltime job. A SEP allows you to contribute up to 25% of earned income, up to $41,000 for 2004 and $42,000 for 2005.

My preferred type of retirement plan is the Savings Incentive Match Plan for Employees or SIMPLE IRA. The SIMPLE IRA was created to make it easier for small businesses with 100 or fewer employees to offer a tax-advantaged, company sponsored retirement plan.

With a SIMPLE IRA you and your eligible employees may contribute up to 3% of earned income (with a maximum contribution of $10,000) on a pre-tax basis to individual SIMPLE IRAs. You must deduct Social Security and Medicaid from your gross income, but you can then make your SIMPLE IRA contribution before other taxes are levied, effectively lowering your taxable income.

As the employer you must make “matching” or “non-elective” contributions into your employees’ SIMPLE IRA accounts. Matching contributions means that the business matches the elective deferral contributions made by employees. For example, if the employee opts to contribute 3% of his salary to the plan, the employer must match the 3% contribution.

At first you might cringe at matching your employees’ contributions, but as the business owner and an employee yourself this can be great news. As an employee of your own business you can contribute up to $10,000 to your SIMPLE IRA and the business can then match your contribution dollar-for-dollar, which means that you can put up to $20,000 in tax free dollars into the plan per year. The cost of the contributions is also deductible as a business expense.
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The non-elective contribution option requires that the company contribute 2% of every employee’s earned income to the plan on the employee’s behalf regardless of whether or not the employee contributes to the plan himself. For 2005 the maximum contribution you would be required to make is $4,200.

Like a traditional IRA, you can withdraw money from a SIMPLE IRA at any time; however distributions within the first two years of participation are subject to higher early withdrawal penalties than traditional IRAs or Roth IRAs. Withdrawals within the first two years are subject to a 25% early withdrawal penalty. Withdrawals taken after the first two years are subject to a 10% early withdrawal penalty.

As the employer, the advantages of a SIMPLE IRA include: company contributions to the plan are tax deductible as a business expense; plan documents are simple and easy to administer; administration costs are low; and there is no government reporting required by the employer.

The advantages of a SIMPLE IRA for your employees include: contributions are immediately 100% vested; contributions and earnings are tax-deferred until withdrawal; employees can contribute 100% of earned income up to $10,000 for 2005; and employees can direct their own investments within the IRA.

This is a complex topic and I’ve just tipped the iceberg here, but hopefully this will give you enough information to get the investment ball rolling.

Here’s to your success!

About the author:
Tim serves is the founder of DropshipWholesale.net, an online organization dedicated to the success of online and eBay entrepreneurs.

Related Links:
http://www.prosperityandprofits.com
http://www.smallbusinessqa.com
http://www.dropshipwholesale.net


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Offshore Assistants

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We are a team of virtual assistants with over 10 years of real-world, practical experience and a growing list of very satisfied clientele. We have a comprehensive and rich professional experience in both the public and private sector, serving in different types of organizations such as law enforcement, legal departments, the judiciary, non-profit organizations, educational institutions, and multinational corporations. Our status as a team signifies that we have a wide range of available skills and backgrounds. Whatever your business or company needs, we will deliver.

Our core values have always been complete customer satisfaction, job efficiency, painstaking attention to detail, and prompt performance. We stand by our belief that our clients deserve the best we have to offer, and we commit to excellence and quality in terms of skills and services rendered. We believe that your business is your labor of love, and we treat your business as it were our own. Constantly driven to excel by these beliefs, we strive to provide the best value for your money.

We also expect our clientele to be equally dedicated to their business. We find that we work best with clients who are dynamic, energetic, expressive, and creative. We’ve come to realize that the best clients are those with excellent business sense: they know that placing too much emphasis on the performance of mundane tasks will seriously detract from the more pressing issues of actually running the business. Hence, they recognize the value of hiring virtual assistants to streamline company operations and relieve them of minor responsibilities, thus giving them complete freedom to run the business.

If you would like to avail of our services, we would be happy to provide you with a complimentary consultation meeting or call, completely free of charge or obligation. Please look to our Contact Us page to find our complete contact information.

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What we can do for you

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We specialize in virtual assistant services for taking care of your administrative, secretarial, clerical, and legal tasks. These tasks are, without a doubt, vital and necessary for your business, and we present a way for you to efficiently manage them and, simultaneously, manage the more critical aspects of your business’ or company’s operations. We can also work with you to identify what your special or specialized needs are.

General Office Support Services
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Document proofreading and      editing
Spreadsheets, graphs,  and charts
Marketing assistance, including telemarketing
Multimedia presentations and slideshows
Database management and  maintenance
Research
Bookkeeping and accounting payroll and billing

Specialized Business Support Services
Business start-up assistance
Corporate identity packages
Screening, interviewing,  and hiring of new employees
Insurance quotes
Marketing assistance and support
Feasibility studies and marketing research

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legal transcriptions
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Our expertise is based on years of top-level administrative experience and training. We carefully evaluate and subject our virtual assistants to a rigorous screening process. When you avail of our virtual assistants’ services, you can expect the services of a fully-qualified expert. You don’t have to go through the tedious process of hiring and screening new employees.If your company’s or business’ workload and/or budget doesn’t allow for full-time permanent administrative staff, or if your workload periodically piles up and cases a backlog in your operations, you need our virtual assistants.

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Availing of Our Services

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As an entrepreneur or small- or medium-scale business owner, you realize the value of your time. Running a business is a dynamic activity: it is imperative to be on top of the situation 24/7/365. Unfortunately, the little details of running a business tend to eat up your precious little time and detract from the more important concerns of running the business.

As a manager of a medium- to large-scale corporation, you are probably familiar with the periodic build-up in the overall company workload: peak seasons bring in torrents of drowning paperwork that, if not properly managed, will take up a lot of your time and energy, both of which are better off spent on actually managing the company. The fact that this phenomenon is seasonal in nature makes it infeasible to hire full-time permanent employees, and hiring part-time employees will further take up a lot of time and resources.

Before we begin a job with your business or company, we will schedule a free consultation meeting or call with you. This is a cursory call and we discuss our services in even greater detail. We aim to establish a degree of rapport with you, our prospective customer, and we mean to show you that we are serious about doing business with you. During this first discussion, we will try to identify your business’ or company’s specific needs; the needs of businesses are unique and they have to be carefully addressed for our virtual assistant services to be fully effective.

After we have identified your company’s needs with you, we will draft a formal detailed job specification along with highly specific recommendations for your company. We submit this specification to you for your approval and revisions. If our proposed specification is to your satisfaction, we can then begin to work with you and your company or business. Otherwise, we will revise the specification until it meets your demands, thereupon we begin our work with you.

Our complete contact details can be found on our Contact Us page on this website. We look forward to a productive working relationship with you and your company or business.

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Pros and Cons of Having an Offshore Bank Account

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Offshore banking has been infamously associated with corrupt executives, drug dealers or other unlawful people avoiding taxation and keeping discreet accounts to hide their criminal deeds. However, this is not generally true. In fact, 80 – 90% of offshore bank accounts are used to protect businesses from lawsuits, scams or other threats.

An offshore bank is typically located in a place with low or no tax jurisdiction. People mostly open an offshore bank account for this reason, for it has legal and financial benefits. However, while there are advantages in offshore banking, there are disadvantages as well.

Pros:

1. Offshore banks can provide stable jurisdictions and regulated banking systems. This is beneficial for people living in politically troubled areas where their assets may freeze, or worse, disappear.

2. There’s not much government interference in offshore banks, so sometimes they offer higher interest rates and lower cost bases than in home countries.

3. Offshore banks sometimes offer services that domestic banks may not be able to provide. Examples of these services are anonymous bank accounts, investment opportunities that cannot be offered anywhere else, and lower of higher rate loans.

4. Offshore banking can provide developing countries opportunities to prosper because offshore finance is an industry that could make remote islands be engaged in source investment, thus creating economical growth.

5. Offshore banks mostly pay interest without having to deduct tax.

Cons:

1. Offshore finance, although a legitimate financial establishment, has been linked with unlawful acts like terrorism, underground economy and money laundering. Along with the events that followed the September 11 attacks, offshore banks were accused of helping terrorist groups and organized crime groups.

2. Offshore bank accounts are mostly available to those who have higher incomes, as the cost of establishing an account is quite high. This leaves the tax burden to the middle-income group in developed countries.

3. Offshore banking has been referred to as the solution to all the financial and legal asset protection issues. However, this is not always the case.

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