Setting Up an Office IRA Can Protect You and Your Small Business Team. Here Are 3 Great Options.

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When you first start a business, it may feel like your to-do list is endless. All the paperwork, all the hurdles, setting your first appointments, managing the office, constantly monitoring data – it can be stressful. Amidst these early hurdles, you may be neglecting something vital to your success, which is preparing an office retirement plan. This is not something that should be put off for later or lost in a pile of other work. It’s something you should do right Now It would promise financial stability and confidence among employees in the future.

As you grow, you have options

As a business owner, there are multiple types of IRAs that you can offer your team. However, when you are just getting started and still relatively young, your best option is usually an Employee Savings Incentive Matching Plan (SIMPLE). The Simple IRA applies to companies with fewer than 100 employees. It’s advantageous because it doesn’t have a lot of start-up and running costs that you might see with other traditional plans. It also does not require you to have other retirement plans, is easy to implement in terms of paperwork, and has no filing requirements.

Simple IRAs give employees a choice about contributing to the account. But they require you as the employer to contribute either a matching contribution of up to 3 percent of pay or a non-selective contribution of 2 percent for each eligible employee. You can withdraw money from a Simple IRA at any time, and the withdrawal is tax-deferred, so you are taxed the year you take it. If you withdraw before age 59, there is a 10 percent fee. If you take it within the first two years, this fee goes up by up to 25 percent.

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For 2022, to do a simple job, you must have earned at least $5,000 in any previous two years and are expected to earn $5,000 in the current year. You can put up to $14,000 a year into a simple IRA. If you are over 50, you can make another “compensation” contribution of up to $3,000, so your deposit can total up to $17,000.

You can also choose a ROTH IRA instead of or in addition to a simple IRA. ROTH IRAs are governed by most of the rules for traditional IRAs. The big difference between traditional and simple ROTH IRAs is that with a ROTH IRA, contributions are taxed when the money is first invested. When you want to withdraw funds, there is no new tax event. You’ve already paid your taxes and you don’t have to do it again. Despite this, you must leave money in your account for at least five years and withdraw after age 59 to avoid a tax penalty.

For 2022, you can contribute to a ROTH IRA only if you earn less than $144,000 as an individual or $214.00 as a couple. The contribution limit is $6000 per year for those under 50 and $7,000 for those over 50.

Related: 6 Reasons to Pursue Entrepreneurship in Retirement

Finally, it might make sense to use a 401(k). You can do a 401(k) even with only one employee, but they must be at least 21 years old and have worked at least 1,000 hours in the previous year. You don’t have to contribute to employee accounts if you don’t have one. But if you are contributing yourself, you are required to make proportionate contributions for each eligible employee. 401(k) plans can be more flexible and have higher contribution limits, and there is an option to do a ROTH 401(k). But 401(k) plans are more complex and more expensive to set up and maintain. It’s usually best to look into these things once your business has grown a bit.

In 2022, employees can put up to $20,500 annually in their 401(k) if they are under 50. If they are 50 or older, they can contribute up to $27,000 per year. Together, you and your employee can contribute up to $61,000 ($67,000 for those over 50) or 100% of the compensation whichever is less.

No need to play games

As a business owner, you may be able to do more than one IRA at one time. You can also pivot from one IRA to another, such as starting with a ROTH IRA and then moving to a traditional IRA, depending on how your business performs. But the general rule of thumb is to put the IRA into your budget from the start. Any brokerage house can set it up for you. It is not necessary to play the stock market here. Simply buy a mutual fund that invests in many different companies and keep putting about $1,000 per month into the same IRA each month. Then make sure that any earnings are automatically reinvested into the IRA.

Related: 7 Best Retirement Savings Strategies in 2022

Choose the right IRA for you and your business now

Most people are not in a position to ignore how they will conduct themselves financially in retirement. If you wait too long, you pay the price. Setting up an IRA can protect you, your team, and indirectly contribute to the loyalty and stability of your employees. If you haven’t set up your accounts yet, do so now. It’s a smart financial strategy that doesn’t cost you a cent.


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