IRA’s are very limiting as far as tax deferral, with a maximum of $5000 ($6000 if you are over 50). Generally, business owners can shelter as much as $49,000 ($54,500 if you are over 50) into a properly drafted and designed retirement plan (which we specialize in, by the way.) When you are looking at the tax savings (using 2009 tax rates, assuming “married, filing jointly), if your company netted $190,000 in profits, you would owe $66,500 in Federal taxes on your profits; with the proper retirement plan in place and maximizing your deferrals, your tax bill would reduce to $39,480, a tax savings of $27,020! (Even more if you are over age 50). In essence, the government is subsidizing a large portion (over half) of your retirement contribution. Why not pay yourself instead of the government? Remember the deadline for implementing this type of plan is October 1, so time is running out if you want to utilize this strategy for 2009. It is also important that you talk with a tax advisor about your situation prior to executing any strategies.
Authored by: Beverly O. Davis, AWMA bdavis@fssplanning.com
Tags: Beverly O. Davis, Financial Services & Solutions, Retirement Plans for Businesses