Watch CBS News

Money Matters - Small Business Week: Retirement Plans

BOSTON (CBS) - Let's start with the simplest plan first.

Podcast

IRAs. You can contribute up to $5,000 this year and if you are over 50 you can use the catch up provision and put away an additional $1000.

But you must have earned income to contribute to an IRA. Let's say your net income for this year is $30,000. You can shelter up to $5,000 of it by contributing to an IRA. If your net income is only $3,000 then you are limited to a $3,000 contribution for the year. Easy to set up just about anywhere. Contributions can be made with your tax return next year.

SEP-IRAs: Simplified Employee Pension Plan uses an IRA format. You can contribute up to 25% of compensation up to $49,000 for this year. Now if you choose a SEP-IRA and have employees you will need to contribute to their SEP-IRAs also and you must contribute the same percentage as you do for yourself.

So if you contribute 25% for yourself, then its 25% for your employees. If your net income is $30,000 and you use a SEP-IRA you would be able to contribute $7,500. Easy to set up with a mutual fund company or a brokerage company. Contributions can be made with your tax return next year.

SIMPLE-IRAs: Savings Incentive Match Plan for Employees was designed for small businesses with under 100 employees. But it is useful for the self-employed as well. Here you are both the employee and the employer. You can contribute up to 100% of compensation up to $11,500 for this year and if you are over the magic age of 50 an extra $2,500.

If you have employees they also can contribute to the plan and their limit is also $11,500. As the employer you will have to match the employee's contributions usually up to 3%. So if you are self-employed and have a net income of $30,000 this year you could possibly put away as much $11,845.

SIMPLEs must be set up by October 1st if you want to use the plan this year. Easy to set up with a mutual fund company. Contributions can be made with your tax return next year..

401(k)s for the Self-employed: You can contribute up to $16,500. And if you are over the magic age of 50 you can contribute another $5,500. So with that same $30,000 income and using a 401(k) format you could contribute up to $16,500 this year. $22,000 if you are over 50.

SEP website: http://www.irs.gov/retirement/article/0,,id=111419,00.html#12

SIMPLE: http://www.irs.gov/retirement/participant/article/0,,id=211345,00.html

One more thing:  Plan on doing something. You can always do something different next year.  But do put some money away for retirement.

Using $30,000 of net income as our basis depending on which you plan you set up you could legally shelter over half of your income ($16,500) for the year.

IRA:                 $5,000

SEP-IRA           7,500

SIMPLE          11,845

401(k)              16,500

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.