3 Reasons To Have A Retirement Account Through Your Business
Colorado Business CPA LLC
November 15, 2019
Building business is not easy, but for the majority of entrepreneurs, it is an exciting task. Most businesses will encounter cash flow issues along the way. However, no matter how challenging it can be at times, always keep in mind that your business is also a vehicle for building your financial net worth. Why would you want to consider to invest in retirement plans when you have your own business? Here are a few good reasons:
First of all, when you operate your business as an S-corporation, you pay yourself (if you have a good accountant) a reasonable salary, meaning usually less then what your total income is. Only your W-2 income will be included in calculating your social security benefits in the future. That means that most likely your social security benefits will be less if you had an LLC and subjected all to self-employment tax. By contributing to your own business established SEP, Solo 401K, 401K or Simple IRA, you are building your financial net worth, and basically using your tax savings generated from being taxed as an S-corporation to fund your retirement plan.
A second good reason to open a retirement plan from your business is that by doing so your business will provide you an opportunity for a greater retirement contribution, versus if you just utilized IRAs (Individual Retirement Accounts). Where a maximum contribution is only $6,000 for 2019. You also can contribute to your employees as well as your spouse who is not employed anywhere else but works in your business, up to 3-5% of their salary match, provided they contribute as well. This improves business culture, your employee's sense of growth in your company, and increases loyalty.
The third reason is, of course, tax savings you generate by contributing to deferred mention plans. Isn't what this is all about in the first place? Your contribution to Simple IRA, for example, can save you somewhere from $2000-$5,000 depending on your income tax bracket and the amount of contribution you are making.
Owning a business in the United States is the best vehicle not only for building financial wealth but saving money on taxes as well.
Please feel free to contact our office if you are looking for a CPA or would like to get any advice in regard to your business situation specifically! 1-800-504-0272
Colorado Business CPA, LLC