Retirement Plans for the Self Employed

Posted on: December 03, 2007

Thanks to recent tax law changes, self-employed individuals (including those employed by their own corporations) now have better retirement plan options than ever before. For example, you can open up:

A profit-sharing plan. For 2008, you can potentially contribute and deduct up to $46,000 (up from $45,000 for 2007). To get a tax deduction for the year, the plan must be established by a certain date.

A defined benefit pension plan. The amount you can contribute and deduct depends on a number of factors, including your age and earnings.

A 401(k) solo plan.

A self-employed pension (SEP). For 2008, you can potentially contribute and deduct up to $46,000 (up from $45,000 for 2007). A SEP can be established as late as the extended due date for your return.

A SIMPLE-IRA plan. This can be a good choice if you earn a relatively low amount of income from your self-employed business activity.

With all of these arrangements, contributions to your account are tax deductible. Even better, the earnings in your account build up tax-free until you start taking withdrawals at retirement age. Keep in mind, if you have employees, you may have to contribute to their accounts as well as your own.

Contributed by Beemer, Smith, Munro & Co., LLP, a Clackamas, Oregon firm comprised of Certified Public Accountants and Business Advisors. This full service practice offers a wide range of services to fit your business and personal accounting needs. BSM also offers no cost reviews of individual or business taxes, and “Profit Improvement Analysis” for your business.