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Architecture Guide
Cost vs. Value Report
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Take a Quiz
30 under 30
Young Professionals
REALTOR® Emeritus |  | TAX-DEFERRED SAVINGS VEHICLES | | ||
|  Are You Ready to Retire? Retirement Budgeting Sources of Retirement Income Tax-Deferred Savings Vehicles Estate Planning Selling Your Business Getting Your Business Ready for Sale Working With a Business Broker Closing-Your-Business Sale More Resources: Retirement Planning | The Right Retirement Plan for You “The first thing to remember is that with any pretax savings plan, Uncle Sam is contributing 25 cents to 30 cents of every dollar. That’s a hard deal to beat,” says certified financial planner William Howard of William Howard and Co. Financial Advisors Inc. in Memphis, Tenn. Q: What factors should an individual consider in selecting a retirement savings plan? Howard: The amount you can contribute annually is one factor. A traditional IRA lets you contribute only $3,000 annually in pretax income toward retirement , while a Keogh lets you contribute the lesser of 25 percent of earned income or $40,000 in 2002. ASIMPLE IRA lets you reduce your pretax income by $7,000 a year, plus your company can contribute a match of up to 3 percent of your compensation. A Keogh also is more flexible in the time allowed to make contributions. Once you have the Keogh established, which must be done by Dec. 31 of the first tax year you’re going to make a contribution, you could put off making a contribution until some time in mid-October of the next year if you file for extensions in paying your income taxes. This longer time could benefit real estate practitioners, who often have erratic income and may want to make a contribution after the strong summer selling season. Contributions to an IRA must be made no later April 15 of the year after you take the deduction. TIP:Make your pre-tax contributions early in the year rather than just before tax time. That way, you’ll benefit from a year of compounding. —William Howard, William Howard and Co. Financial Advisors, Memphis, Tenn. Q: What are some other advantages of Keogh plans? Howard: Although advantages vary from state to state, Keoghs generally give you more protection from the claims of creditors than a traditional IRA, which could be a big plus if you’re sued or run into serious financial difficulty. Keoghs also have provisions that allow you take out a loan against your retirement account without incurring a 10 percent early withdrawal penalty. Although I’d advise clients against doing so, it does provide an option in case of emergency. You can also make non-penalty withdrawals from IRAs but only for certain specified uses, such as a downpayment on a first home or tuition payments to an eligible financial institution. Q: Which plans offer the best options for brokers who want to establish retirement plans for their employees? Howard: Both Simple IRAs and Keoghs are good options for brokers who want to include employees in their retirement planning. (Note that independent contractors can't be included in company based retirement plans). Both plans let you make contributions toward employees’ retirement accounts at a set percentage you choose. However, with a Simple plan, employees are 100 percent vested from the moment they join the plan. This means that they can withdraw all monies when they leave, even if they’ve only been with you for six months. A Keogh plan lets you set up a vesting schedule that requires employees to work for the company several years before they are entitled to 100 percent of their retirement funds contributed by the company. This could both protect your contributions and serve as a retention tool. TIP: For more advice on retirement plans for small businesses, visit the IRS small business and self-employed community section. Understanding Annuities > | |