It’s that time of the year again. Yes, that time when tax advisers like Joe Kristen who writes the Tax Update Blog for Roth & Co., P.C., ask self-employed business people, Is A Qualified Plan a Good Move by Year End?.
So let’s assume that for personal financial and tax reasons the answer is yes. And further to keep it basic, let’s assume that only one individual is involved, and that person is “in business for himself or herself”. This means for retirement planning purposes, it’s someone who has self-employment income from a trade or business – so called “sweat of the brow” income rather than income received as dividends for example. And it can also include individuals with supplemental self-employment income such as:
- Independent members of corporate boards,
- University professors with consulting income,
- Writers or others with royalty or licensing income, or
- Anyone who otherwise receives any fees from sources other than his or her primary employment
For the self-employed, the tax laws have never been better to save money for retirement on a tax-deferred basis using a choice of retirement plans. And so again to keep it basic, let’s take a self-employed individual who has net earnings before the retirement plan deduction of $100,000. His or her options from a contribution standpoint could be these:
|Maximum Profit Sharing/401(k)||$39,087.05|
|Maximum SIMPLE IRA||$15,706.85|
And this is even before a defined benefit plan with larger potential contributions can be factored into the equation. But as Joe tells us while the contribution doesn’t have to be made until the due date of the income tax return including the extension, the plan must be in place by year end. And there’s still time.
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