Set up a 401(k) for Your Business

If you are a baby boomer worried about the erosion of your retirement savings, and you have extra cash in your business this year (”Cash?” “What’s cash?”), consider starting a 401(k) for your business instead of getting an IRA.  You can start a 401(k) even if you have a sole proprietorship. As a matter of fact, it’s easier to start a 401(k) if you have no employees, because the administrative regulations and restrictions are less.

The advantage of a 401(k) over an IRA is that you can put more money in it.  You can  put $15,500 in the 401(k) plan ($20,500 if you are 50 or older) from  your own income.  Then you can contribute 25% of your profits, up to $46,000 ($51,000 over 50).

You can use any qualified investment – securities, not collectibles.  (A “qualified” is one that meets IRS requirements.)  Get the lowest cost securities possible.

To set up a 401(k) plan for your business,  you’ll need the help of an investment advisor, but here are the basic steps: (from the Department of Labor website):

• Adopt A Written Plan

• Arrange A Trust Fund For The Plan’s Assets

• Develop A Record Keeping System

• Provide Plan Information To Participants

And don’t forget that your costs for setting up the plan are also tax-deductible.  Remember, I’m not a financial planner or tax consultant, so check with your advisors before you set up something like this.