For Indianapolis entrepreneurs, a key decision is the selection of the proper retirement plan. With the guidance of an Indianapolis based Certified Public Accountant, entrepreneurs can begin to weigh the options available in selecting a qualified retirement plan. A qualified plan potentially provides a valuable tax shelter today and an income stream in the years after you’ve retired from your business. Retirement accounts must be set up through a financial institution of your choice, but a CPA can educate you on how the different types of retirement accounts impact your taxable income. Here are different self-employed retirement accounts to consider:
- Traditional IRA – You can contribute up to $5,500 per year or $6,500 if you’re age 50 or older if you have taxable compensation, but you cannot contribute after the age of 70½. You are taxed once the income is withdrawn from the account with penalties for early withdrawals. Your contributions are tax deductible.
- Roth IRA – You can contribute at any age with a maximum contribution of $5,500 per year or $6,500 if you’re age 50 or older as long as you have taxable compensation. Your contributions are not tax deductible; however, qualified withdrawals are not taxed.
- SEP IRA – SEP stands for Simplified Employee Pension and is a traditional type of IRA set up for self-employed individuals or small business owners. The biggest difference between a traditional IRA and a SEP IRA is the annual maximum contribution limit. With an SEP IRA, Indianapolis small businesses can contribute as much as 25% of net earnings from self-employment up to $52,000 in 2014.
- 401(k) – You can make salary deferrals up to $17,500 in 2014 (plus an additional $5,500 if you’re 50 or older) of your compensation from the business either on a pre-tax basis or as a designated Roth contribution. Additionally, you make a contribution of up to $52,000 in 2014. You are taxed on withdrawals from this account. You lower your taxable income while contributions are being made.
Each small business has its own set of goals for growth and retirement—and its own needs for cash flow today. An Indianapolis outsourced accountant like KLP CPAs can help self-employed individuals and small business owners make the right business decisions for today while planning for tomorrow. For more information, give us a call today.
