Choosing A Retirement Plan

A major benefit in setting up a qualified retirement plan is generating a current tax deduction and saving tax deferred income and growth for future retirement income.  Choosing a retirement plan can be quite a challenge for many small business owners whether they are a sole proprietor, Limited Liability Company, Corporation or an S-Corporation.

One type of plan to consider is a Simplified Employee Pension Plan otherwise known as a SEP IRA. The SEP IRA can provide a significant source of income at retirement by allowing employers to set aside money in retirement accounts for themselves as well as for their employees.  A SEP IRA does not have the startupand operating costs of a conventional retirement plan and allows for a contribution of up to 25% of each employee's salary with a maximum contribution of $51,000 for 2013.  

This can be very beneficial if properly utilized.   One great example of a situation where a SEP IRA could potentially save the taxpayer a significant amount of tax, is an S-Corporation with a husband and wife team who are the only Shareholders, and no other employees.  First of all, taking a salary from the corporation is 100% deductible by the corporation, and secondly the SEP IRA contribution of up to 25% of that salary is fully deductible.  

This situation can also be used with other entities.  A Limited Liability Company or LLC can benefit in an even greater capacity because of the self-employment taxes that are calculated on the net profits of the LLC.  

You should always consult your tax accountant to confirm your individual situation and to determine which retirement tool would be the most beneficial for you.