Join | Member Login
Arlington (VA) Chamber of Commerce | Arlington, VA 22201
  • Membership
    • Membership Benefits
    • Join Now!
    • Chamber Assisted Grand Openings
    • Chamber Member Retirement Program
    • ShopChamber
    • Advertising >
      • Website Ads
      • E-Newsletter Ads
    • Arlingtonopoly
    • Century Club
    • Committees
    • LeadShare
    • Annual Corporate Sponsors
    • Member Login
  • Business Directory
  • Events
    • Chamber Calendar
    • Community Calendar >
      • Submit a Community Event
    • Signature Events >
      • Arlington Business Gala
      • Hospitality Awards
      • AWE Women in Business Summit
      • Arlington Chamber Volunteer Day
      • Best Business Awards
      • State of the County & Public Safety Awards
      • Annual Meeting
    • Advocacy Events >
      • Legislative Breakfast
      • NOVA Elected Leaders Summit
      • County Board Candidate Forum
    • Networking Events >
      • Breakfast Connection
      • Business After Business
      • Women in Business
      • Young Professionals Happy Hour
    • Educational Events >
      • Chamber 101
      • Small Business Roundtable
  • Community
    • Arlington Restaurant Week
    • Employer Resources
    • Coupons
    • Job Board
    • Job Shadow Day
    • Travel
    • Foundation
    • Scholarship Fund
    • About Arlington >
      • Business Resources
      • Map of the Area
      • Visiting Arlington
  • Business Advocacy
    • Public Policy Positions
    • Arlington Advocacy >
      • Budget & Taxes
      • Planning
      • Project Support
      • Economic Development
      • Processes
      • Retail & Signage
      • Transportation
    • Virginia Advocacy >
      • Budget & Taxes
      • Transportation
      • Economic Development
      • Other Topics
    • Recent Advocacy
  • About the Chamber
    • 100th Anniversary
    • Board of Directors
    • Staff Directory
    • Chamber In The News
    • Strategic Plan
    • FAQs
    • Publications >
      • Publications (2011 - 2024)
    • Press Releases
    • Contact Us
  • Membership
    • Membership Benefits
    • Join Now!
    • Chamber Assisted Grand Openings
    • Chamber Member Retirement Program
    • ShopChamber
    • Advertising >
      • Website Ads
      • E-Newsletter Ads
    • Arlingtonopoly
    • Century Club
    • Committees
    • LeadShare
    • Annual Corporate Sponsors
    • Member Login
  • Business Directory
  • Events
    • Chamber Calendar
    • Community Calendar >
      • Submit a Community Event
    • Signature Events >
      • Arlington Business Gala
      • Hospitality Awards
      • AWE Women in Business Summit
      • Arlington Chamber Volunteer Day
      • Best Business Awards
      • State of the County & Public Safety Awards
      • Annual Meeting
    • Advocacy Events >
      • Legislative Breakfast
      • NOVA Elected Leaders Summit
      • County Board Candidate Forum
    • Networking Events >
      • Breakfast Connection
      • Business After Business
      • Women in Business
      • Young Professionals Happy Hour
    • Educational Events >
      • Chamber 101
      • Small Business Roundtable
  • Community
    • Arlington Restaurant Week
    • Employer Resources
    • Coupons
    • Job Board
    • Job Shadow Day
    • Travel
    • Foundation
    • Scholarship Fund
    • About Arlington >
      • Business Resources
      • Map of the Area
      • Visiting Arlington
  • Business Advocacy
    • Public Policy Positions
    • Arlington Advocacy >
      • Budget & Taxes
      • Planning
      • Project Support
      • Economic Development
      • Processes
      • Retail & Signage
      • Transportation
    • Virginia Advocacy >
      • Budget & Taxes
      • Transportation
      • Economic Development
      • Other Topics
    • Recent Advocacy
  • About the Chamber
    • 100th Anniversary
    • Board of Directors
    • Staff Directory
    • Chamber In The News
    • Strategic Plan
    • FAQs
    • Publications >
      • Publications (2011 - 2024)
    • Press Releases
    • Contact Us

ChAmber Blog

Which Retirement Plan Best Suits Your Business? (Part 2)

11/18/2015

1 Comment

 
​by Eric Schaefer, CFP®, Financial Advisor, Evermay Wealth Management
In my last post, I gave an overview of common retirement plans available to businesses with two or more employees. Self-employed professionals can also benefit from the current year tax savings, future employee attraction and the diversification benefits of an employer sponsored retirement plan. While most account types available to groups are also available to self-employed business owners, there are a few beneficial differences. Below, I touch on a few popular choices and why they might make sense for your business:
SEP IRA:
Simplified Employee Pension (SEP) IRA’s are a variation of individual retirement accounts set up by an employer for its employees. These are particularly popular with self-employed individuals with sporadic cash flow. For 2015, the maximum contribution is $53,000. Contributions are typically limited to about 20% of business income, adjusted for self-employment tax. SEP IRA’s are different than many other plan types in that contributions are not mandatory and can take place at any time before the filing of the tax return (even if you extend to October 15th). The ease of setup, low administration cost and limited reporting requirements make SEP IRAs a popular choice for solopreneurs.
Individual 401(k) Plan:
Also referred to as a Solo-K plan, an individual 401(k) plan is exactly what it sounds like. Contributions are made by both the employee and employer, allowing for higher contribution limits than an employee could otherwise contribute. Employee contributions are limited to $18,000 per year ($24,000 if you’re over 50). If cash flow and profit permits, a non-elective employer contribution can be made to up to $35,000; a combined total of $53,000 ($59,000 if 50+). The non-elective contribution is based on self-employment income or W-2 if the business is incorporated and paying a salary. An important note: Individual 401(k) accounts MUST be set up before December 31 of the year in which the contribution will count; but the contributions need not be made at that time.
One reason individual 401(k) plans have gained popularity in recent years is because of a planning strategy used by many contractors and consultants who are also employed elsewhere. If they have consulting income and also set up an individual 401(k), they may have the opportunity to contribute an additional “non-elective” contribution of up to $35,000. For a Virginia taxpayer in the 35% tax bracket, that’s an immediate tax savings of $21,597! There are limitations based on business ownership and control, make sure to get an expert’s opinion if this applies to you.
Defined Benefit Pension:
As I mentioned in my first blog entry, pensions may have higher contribution limits, leading to more tax savings for a business owner. In most qualified accounts, the IRS sets blanket limitations annually. With a defined benefit pension, the IRS punts this responsibility to actuaries. The actuaries make their calculations based on your age, income, term of service and intended annual benefit. As you can imagine, a high income earning 63 year old with a starting plan balance of $0 may be able to make contributions well into the six figure range. While these plans cost a few thousand dollars to set up, a client of mine recently saved over $90,000 in 2014 taxes by setting up defined benefit plan. Funding a pension in does not obligate you to take the balance as an annuity at retirement, as you have the option of rolling it into an IRA.
Other Plans:
In the past, retirement plans for individuals were referred to as “Keogh Plans”. These plans aren’t as common anymore as they are less flexible and more costly to administer than SEP IRA’s but are subject to the same contribution limitations. Keogh plans with a defined contribution percentage are required to meet this contribution each year or be subject to a penalty; SEP IRA’s do not have this requirement.
SIMPLE IRA plans were also popular in the past but are still present in many businesses. As the name suggests, they’re simpler to set up than a traditional 401(k) but are limited to lower contribution limits of $12,500 ($15,500 if 50+). In addition to the employee contribution, the business can provide a match of up to 3%. These plans are not popular for self-employed savers as they have lower contribution limits and a small but rigid matching amount.
Conclusion:
While I have only touched on a few of the available options, each saver has a unique financial picture that will determine which plan type is most appropriate. Many business owners and self-employed professionals struggle with saving and planning for retirement, but it’s never too late to start.
Eric Schaefer, CFP® is a Financial Advisor with Evermay Wealth Management, an independent fee-only investment advisory firm in Arlington, VA. Eric can be reached by e-mail at [email protected] or by phone at (703) 822-5696. 
Picture
1 Comment
Morgan Colin link
3/30/2017 04:30:35 am

Your blog is as amazing as always … I am a regular visitor of your blog due to its innovative and interesting content, they are helping me in my career a lot. Thanks for sharing this amazing information.

Reply

Your comment will be posted after it is approved.


Leave a Reply.

    The mission of the Arlington Chamber of Commerce is to strengthen businesses and the economic environment for those who work, live and do business in Arlington.
    Picture
    Contribute to the blog!
    Educate the Chamber membership and Arlington business community by writing a post for our blog! To get started download the blog guidelines and blog template. For questions and more information, contact the Communications Manager.

    Archives

    April 2023
    March 2023
    February 2023
    January 2023
    December 2022
    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    April 2013

    RSS Feed

© Copyright 2025 Arlington Chamber of Commerce. All rights reserved.
2009 14th Street, North  | Suite 100 | Arlington, VA 22201 | Directions
Tel (703) 525-2400 | [email protected]
MemberClicks
Subscribe to our Mailing List
Home | ​Join Now | Site Map