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Often Overlooked Retirement Saving Opportunities

The following scenario illustrates how a small business owner can capitalize on retirement saving opportunities through coordinated business and individual plans.

Individual 401(k). This type of business retirement plan is simple to administer for a Corporation, Partnership or Sole Proprietor. This type of plan can shelter more savings than other business retirement plans at identical income levels. The business should include the owner (their spouse or their partners in a partnership) and have W-2 employees working less than 1000 hours per year.

Ann, 46, is self-employed and establishes an individual 401(k) plan. She can contribute up to $52,000 for 2014 ($57,500 if 50 or older) from:

 Salary Deferral. This portion can be 100% of her compensation up to $17,500 ($23,000 if 50 or older) based on either her corporation W-2 wages or net adjusted business profit if unincorporated.
 Profit Sharing. This portion can be up to 25% of her W-2 compensation from the corporation or 20% of her net adjusted business profit if unincorporated. The Profit Sharing portion will be either a business expense for her corporation or a reduction of personal income if unincorporated.

Ann also likes several additional features of the individual 401(k):

 Flexibility. Ann can decide each year how much to contribute to her plan or whether to contribute at all.
 Rollovers. Ann’s individual 401(k) can accept rollovers of funds from another retirement savings vehicle, such as an IRA, a SEP, or a previous 401(k) plan.
 Loan Provision. Ann also likes that she could take a loan from her individual 401k up to 50% of the value or $50,000 maximum.

Roth IRA. Ann also establishes a Roth IRA for individual savings. She can make an after-tax contribution of $5,500 to the account in 2014 ($6,500 if 50 or older). If her income level prohibits a Roth IRA contribution, she can fund a Traditional IRA and convert it to the Roth IRA. Also, Ann likes that she can withdraw her Roth IRA contributions tax and penalty free should she need it.

Further Consultation. For further information about retirement plan options and limitations consult IRS Publication 560, a CERTIFIED FINANCIAL PLANNER™ professional, or your tax advisor.

Glenn A. Cunningham is a CERTIFIED FINANCIAL PLANNER™ professional located in Temecula. He is the owner and President of GC Asset Management, a Registered Investment Advisor that specializes in Wealth and Retirement Strategies. For more information visit www.GCAsset.com  or call (619) 356-8810.