Set Up a Simple Pension Plan and IRA (2)
by admin• An employee, that is, spouse, can contribute a percentage of his or her salary, or you can contribute a percentage of your net income up to $7,000 per year (in 2002). In addition, you as the sole proprietor can match your own contribution of up to 3 percent of your net income. For example, let’s say you net $60,000 a year from your home-based business. You can contribute to a simple plan as much as $7,000.10 Plus your business can matchyour contribution—up to another 3 percent11 of $60,000, which equals $1,800 on top of that.
Simple plans have some important advantages:
1. If you have any employees, you will not have to worry about covering them if they do not contribute to the plan. If, however, they choose to contribute, you must match any of their contributions up to 3 percent of their wages.
2. There are no administrative costs or filing requirements with simple plans. Most qualified plans can cost anywhere from $1,000 to $5,000 per year to administer. But simple plans cost you nothing. The funds you contribute go directly to the employee’s own IRA without requiring you to do any complex filing with the IRS.
While qualified plans have their own advantages, if you are a small business owner, you should check out simple pension plans, reviewing your options with your accountant where necessary to determine where the maximum tax benefits can be achieved for you.
Taken from : Money Mastery “10 Principles That Will Change
Your Financial Life Forever
