If you have business income you can boost your retirement nest egg.
Money Girl
234 MG How to Use a SIMPLE IRA or 401(k) Retirement Plan
In Colorado, our freedoms are everything. Gabe Evans would rip them away. Just like Lauren Boebert, he'd ban abortion without exceptions for rape or incest, and overturn the right to marry for same-sex couples. Don't let him take our freedoms. Paid for by DCCC, www.dccc.org, not authorized by any candidate or candidate's committee. Curious how equity compensation can help build employee financial confidence and move your business forward? Tune in to the latest episode of Morgan Stanley at Work's Invested at Work podcast, where we explore the power of financial benefits and how they can help your employees in the workplace and beyond. Listen now by visiting morganstandley.com/investedatwork or stream on Apple or Spotify, because we believe that when employees thrive, your company thrives too. Again, visit morganstandley.com/investedatwork to listen today. [music] Hi friends. Thanks for downloading the Money Girl podcast. I'm your host, Laura Adams. [phone ringing] One of the advantages of being self-employed is that you get additional perks from the Internal Revenue Service to help you save for retirement. Setting up a retirement plan for your business allows you to put aside more money, gives you additional tax deductions, and may help you attract and keep valuable employees. One of the retirement plans available for a small business is called a "simple plan," no matter if you run a business with employees or are self-employed and work by yourself full or part-time. I'll tell you what you need to know about using a simple to grow a healthy retirement nest egg. [silence] Simple is an acronym that stands for Savings Incentive Match Plan for Employees, but it's also meant to be a simplified retirement plan with relatively low costs. You can set up a simple IRA or a simple 401(k). To learn more about their differences, check out the links that I've provided on the MoneyGirl section at quickanddirtytips.com. Just look for episode number 234. Either one is ideal as a starter plan for small to medium-sized companies or for the self-employed because they come with few administrative hassles, fees, and restrictions. As long as you don't maintain another type of workplace retirement account, like a conventional 401(k) or a SEP IRA and you have fewer than 100 employees, you can set up a simple for your business. I did a previous podcast about using a SEP IRA, which is episode number 217. So be sure to listen to that show to compare a SEP and a simple. The requirements for contributing to a simple are pretty straightforward. Employees and self-employed individuals must generally have earned at least $5,000 during any of the two prior years. Additionally, you must expect to earn at least $5,000 during the current year in which you make simple contributions. A simple allows an employer to reduce an employee's paycheck by a certain percentage or flat amount and contribute it to the account. For 2011, you can contribute a maximum of $11,500 or $14,000 if you're age 50 or older. Contributions are always made on a pre-tax basis, so they're excluded from gross income and are not subject to federal income tax withholding. You're always 100% vested in or have full ownership of all the contributions you and an employer make to a simple. And you can stop making contributions at any time during the year. You typically get to choose how to invest your money from a menu of options that are available from the financial institution that manages the simple and holds your funds. One of the defining features of a simple is that the employer must contribute to their workers' accounts each year as either matching funds or as non-elective contributions. Here's how the matching option works. The employer must match what the employee contributes on a dollar-for-dollar basis up to 3% of their compensation. For example, if you earn $50,000 and contribute 10% or $5,000 to a simple, your employer would match 3% of your compensation by depositing an additional $1,500 into your account, bringing your total contribution for the year up to $6,500. But if an employee doesn't contribute any money, they lose out on getting additional matching funds. In Colorado, our freedoms are everything. Gabe Evans would rip them away. Just like Lauren Bobert, he'd ban abortion without exceptions for rape or incest, and overturn the right to marry for same-sex couples. Don't let him take our freedoms. Paid for by DCCC, www.dccc.org, not authorized by any candidate or candidate's committee. AI might be the most important new computer technology ever. It's storming every industry and literally billions of dollars are being invested, so buckle up. The problem is that AI needs lots of speed and processing power. So how do you compete without costs spiraling out of control? It's time to upgrade to the next generation of the cloud, Oracle Cloud Infrastructure, or OCI. OCI is a single platform for your infrastructure, database, application development, and AI needs. OCI has 4 to 8 times the bandwidth of other clouds, offers one consistent price instead of variable regional pricing, and of course, nobody does data better than Oracle. So now you can train your AI models at twice to speed in less than half the cost of other clouds. If you want to do more and spend less like Uber, 8x8, and Databricks Mosaic, take a free test drive of OCI at oracle.com/advanced. That's oracle.com/advanced, oracle.com/advanced. Curious how equity compensation can help build employee financial confidence and move your business forward? Tune in to the latest episode of Morgan Stanley at Work's Invested at Work podcast, where we explore the power of financial benefits and how they can help your employees in the workplace and beyond. Listen now by visiting morganstandley.com/investedatwork, or stream on Apple or Spotify, because we believe that when employees thrive, your company thrives too. Again, visit morganstandley.com/investedatwork to listen today. The second simple option for an employer is to make non-elective contributions to their employees' accounts. Non-elective means that the employer has to pay up, regardless of whether the employee contributes any of their own money. The employer is required to give the employee 2% of their compensation up to $4900 each year. For instance, if you make $50,000, the employer would be obligated to kick in 2% or $1,000, regardless of the amount you contributed. Again, the employer gets to choose between these two options. They never have to fork over both matching and non-elective contributions. Distributions from a simple are subject to typical IRA and 401(k) rules. You must begin taking required minimum distributions after age 70 and a half, and early withdrawals taken before age 59 and a half are generally subject to income tax plus a 10% penalty. The early withdrawal penalty is actually increased to 25% if funds are withdrawn before you've participated in a simple for two years. After this two-year time limit, you can also make tax-free rollovers from a simple IRA or a simple 401(k) into a traditional IRA if you decide to call it quits with your business or job. It's important to remember that using a simple for your business or contributing to one as an employee never affects the amount you can put in a traditional or Roth IRA. For 2011, you can still contribute $5,000 or $6,000 if you're age 50 or older. If you're a business owner who maxed out your IRA and still have more money to invest, take a hard look at using a retirement plan for your business. A simple could be the ticket to saving more now, so you have much more income to enjoy during retirement. If you like the tips you get in the Money Girl Podcast, you'll love my book Money Girl Smart Moves to Grow Rich. Head over to smartmoves2growrich.com where you can download two free book chapters. On the Money Girl page at quickanddirtytips.com, you'll find more ways to learn about money and how to connect with me, like the free Money Girl newsletter, my Facebook page, which you can find by going to facebook.com and doing a search for Money Girl, or how to follow me on Twitter. My username there is Laura Adams with no space. You can submit your money question by emailing money@quickanddirtytips.com or leaving it on my voicemail line at 206-333-1610. I'm glad you're listening to change. That's all for now, courtesy of Money Girl, your guide to a richer life. [MUSIC] In Colorado, our freedoms are everything. Gabe Evans would rip them away. Just like Lauren Bobert, he'd ban abortion without exceptions for rape or incest, and overturn the right to marry for same-sex couples. Don't let him take our freedoms. Paid for by DCCC, www.dccc.org, not authorized by any candidate or candidate's committee. Curious how equity compensation can help build employee financial confidence and move your business forward? Tune in to the latest episode of Morgan Stanley at Work's Invested at Work podcast, where we explore the power of financial benefits and how they can help your employees in the workplace and beyond. Listen now by visiting morganstandley.com/investedatwork or stream on Apple or Spotify because we believe that when employees thrive, your company thrives too. Again, visit morganstandley.com/investedatwork to listen today.