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Retirement Savings

Retirement Savings

 - Introduction
 - Types of Tax Incentives
 - Maximize Company
    Savings Plans
 - Automatic Savings
 - Contribution Limits
 - Types of Retirement
 - Small Business &
    Self-Employed Plans
 - Asset Allocation
 - Educational Savings




Small Business and Self-employed Plans


SEP IRAs are Simplified Employee Plans, where employers set up separate IRAs for each employee. Contributions, however, are much larger then your traditional IRAs; SEP IRA owners can contribute up to 25% of compensation, capping at $44,000 in 2006. Contributions are vested when funded.

SIMPLE IRAs are Savings Incentive Match Plans for Employees. A traditional IRA is set up by a small employer on behalf of his employees. In 2006, employees can contribute up to $10,000 into a Simple IRA. Catch up contributions are capped at $12,500.The employer will also make a matching contribution based on a percentage of the employee’s wages. Employers usually match, dollar for dollar, up to 3% of the employee’s compensation. There are also other matching options available to employers.

Solo(k) plans are pretax retirement accounts for small business owners, their partners and families. These plans offer significantly faster and higher contribution limits. In 2006 employees can contribute up to $15,000 in wages. Employees age 50 and over can add another $5,000 in catch up contributions. The employer can also contribute up to 25% of the employee’s pay as profit sharing; 20% for the self-employed. Contributions are capped at $44,000 in 2006. Distributions rules are similar to traditional 401(k) plans.  

Keogh plans are tax deferred retirement accounts. Contributions in 2006 are subject to a $44,000 ceiling. There are two types of plans:

  • Money Purchase Pension Plans are defined contribution plans where the employer’s contribution percentage is fixed when the Adoption Agreement is established. Contributions are mandatory regardless of the company’s profit level. 
  • Profit Sharing Plans are savings accounts where a percentage of the employee’s pre-tax pay is contributed, by the employer, to a tax deferred retirement account. Contributions are voluntary for the company and are based on profits.

There are also Keogh defined benefit plans with much higher contribution levels. They are, however, more complex.

Review information on: Asset Allocation


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