Retirement Plans for Part Time Small Businesses
Many people choose to maximize their earning potential by supplementing the income from a full-time career with a part-time business. Owning your own business can be very rewarding, both financially and personally, but it can also be costly in terms of taxes. Opening a retirement plan for your part-time business allows you to save money on taxes as you invest for your future.
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SEP-IRA
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A simplified employee pension, or SEP, IRA is an excellent choice for small businesses who want to put money aside for retirement and save on taxes. With a SEP-IRA, you can contribute up to 20 percent of your income if you are a sole proprietor, or 25 percent if your business is incorporated. The generous contribution limit of $49,000 is one aspect that makes it so attractive for both full-time and part-time businesses. The SEP-IRA also has a number of other advantages, including easy setup and the fact that no forms must be filed with the IRS.
Individual 401k
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If your part-time business has no employees other than yourself and a partner, you can open an individual 401k and set aside a lot of money for retirement. You can contribute to your individual 401k as both employee and employer, making it possible to shelter a lot of money from taxes while saving for your future. For 2011, you can contribute up to $16,500 as an employee, plus an extra $5,500 if you are at least 50 years of age. You can also contribute up to $49,000 to the plan as an employer, based on the level of business earnings.
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SIMPLE-IRA
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You can use a SIMPLE-IRA as long as your part-time business has fewer than 100 employees. Your employees can contribute up to $11,500 to their SIMPLE-IRA plans, or up to $14,000 if those workers are 50 or older. As the employer, you have the option of contributing 2 percent of each worker's salary, up to a maximum of $4,900, or matching 3 percent of worker contributions to the plan.
Keogh Plan
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A Keogh plan allows you to contribute up to $49,000 per year. However, the amount you can contribute is tied to your salary, so you might not be able to contribute the maximum based on your part-time earnings. You can contribute up to 25 percent of the salary you receive from your part-time business, so you need to track your income carefully to maximize your contribution and the resulting tax break. You can open a Keogh plan at many banks, brokerage firms and some mutual fund companies as well.
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References
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