Retirement Planninmg for Self-Employed

Self-employed and owner-only businesses present a different opportunity in setting up a retirement savings plan.   In addition to various retirement savings plans suitable for businesses, self-employed individuals who have no employees (other than a spouse) can establish a Self-employed 401(k) plan.

A Self-employed 401(k) plan, also known as a Solo 401(k) plan, may substantially reduce your current income taxes because you can deduct the entire amount of your plan contributions from your taxable income each year.  The deductible amount available may vary.  Please consult your tax advisors or contact us for more detail.

As an employee of your company, a Self-Employed 401(k) plan allows you to make tax deductible 401(k) salary deferrals to the plan of up to $15,500 for 2008.  If you are age 50 or older, you can make an additional catch-up salary deferral contribution of $5,000.

As an employer, you can make tax-deductible profit sharing contributions of up to 25% of compensation (earned income for self-employed individuals) up to the annual maximum of $46,000 for the 2008 plan year.

With these two sources of contribution (employee's salary deferral and employer's tax deductible contribution), the total cannot exceed $46,000 for 2008, and $51,000 if age 50 or older.