Retirement plans seem like a great benefit for large businesses but did you know even if you are a one person business (plus spouse) you can have your very own 401k? The one person 401k is one of the best retirement plans in existence today.
It is called the Solo 401k or Safe Harbor 401k. Basically, it works exactly like a regular 401k with the exception of no nondiscrimination testing. If you are not sure what non discrimination testing is then don't worry about it! You don't need to know with this plan!
To top that off, you can also open the 401k as a Roth 401k meaning that depending on your income you might be able to contribute $50,000 per year into a Roth account or $100,000 annually if you spouse works with you. If you use annuities for your Solo 401k investment you can also create guaranteed income for life.
The IRS has the best resource when learning about the 401k plan; just remember that the IRS calls it the Safe Harbor 401k. Visit their 401k Landing Page for all of the details. Keep in mind the IRS site is written in accounting terms but it is a great way to get started. Since tax law creates retirement plans, the IRS website is an original source. Technically, congress creates the law but I honestly don't how to find the original laws to peruse in my free time and I probably wouldn't anyway.
To learn more about the awesome benefits of the Solo 401k when combined with annuities read - Should Your Solo 401k Be Invested In An Annuity?
To learn more about why annuities belong in business retirement plans read - The Pros Of Annuities In Business Retirement Plans
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Are you thinking of implementing a retirement plan for your business?
Do you want to know more about the plan you already have in place?
One great source that I use often with clients is the Department of Labor publication - Choosing A Retirement Plan Solution for Your Small Business. Choose the printer friendly option to make it easier to read even if you do not print the document. In the DOL publication, each type of plan is discussed at length and simple explanations are given. If you are starting a plan now or already have a plan in place, the simple explanations will clear up much of the confusion.
You can also take a look at the IRS online publication entitled - Small Business Retirement Plan Resources. Each heading on the page is a detailed answer session for tough Business Retirement Plan questions.
I believe in going to the source for answers to my questions. Believe it or not, retirement plans are actually tax law. They are designed to defer tax liability and provide incentives for people to save for retirement. Notice the term - defer. You will not get out of paying taxes on your income. That is avoidance and unfortunately is illegal. But deferring your taxes is legal and a great way to save for retirement!
If you have already starting the process or are thinking about starting a retirement plan for your business it is very helpful to get a good grasp on why you are willing to start the plan. It will cost you money but it will also save you money. Are the up-front costs worth the trouble? Is a matching contribution plan really worth the business income it will take to keep it up and running?
To learn more about why you want to start a plan now read - Why You Should Implement A Retirement Plan For Your Business
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Divided is how I would describe current opinion on annuities in business retirement plans and annuity retirement plans. The division is well deserved. Sometimes annuities are the worst idea ever and sometimes they are the best idea ever for a retirement plan option. The difference lies in the individual most of the time. Is an annuity right for you?
Of course the other obvious factor is the quality of the annuity in the plan. High expenses usually indicate an under performing plan. To know whether an annuity has high expenses you need to compare it with other similar annuities.
The expert's opinions are usually divided because of the expense issue and the ability to make a variety of investment decisions within the plan. I tend to agree with both of these arguments, expenses and variety, until you add in the other amazing benefits that annuities offer other than just pure performance. After the other benefits are calculated in, I feel like it is an - either or position - that can end up very positive or just neutral.
Do you have an annuity retirement plan? Keep in mind we are not talking traditional pension like benefits although those are always available when using annuities. We are talking a variable annuity retirement plan with no intentions of annuitizing.
If you have an annuity retirement plan then look into the "extra" benefits of the annuity. Depending on your exact situation the "extra" benefits like guaranteed income for life without annuitizing might be the best add-on and decisions you have ever made concerning your investments. You may still be too young and if so then just keep it in mind to add in the benefits at a later date.
What are the pros and cons of annuities in business retirement plans?
For the cons read - The Cons Of Annuities In Business Retirement Plans
For the pros read - The Pros Of Annuities In Business Retirement Plans
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Friday April 27, 2012
In the past, it was a fish story. I remember when got started in the retirement business 12 years ago there was a broker in my little town that was basing retirement plans on 15% returns for income withdrawals!
I also recently heard a major financial figure head tell his audience that if you aren't getting 15% average annual returns on your mutual funds you should change brokers! Seriously? I have never met a broker that can average that amount for any given time and I have never seen a mutual fund that can either. This is especially true over a length of time, such as your retirement of 30 years, give or take a few. If he had said real estate at 15% average annual returns I would have totally agreed with him. Talk about a fish story!
Guaranteed income from annuities is not a fish story. In fact, the "lure" to the idea is very strong as insurance companies are offering a very strong product. Guaranteed income works as a percentage of your total assets at the time of activation without loss to principal. You do not lose access to your principal!
You can also get your principal guaranteed to never go down by using fixed indexed annuities instead of variable annuities. The "lure" is guaranteed income, no principal loss, and market-like returns. To learn more about planning your retirement read - Retirement Planning And Annuities.
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