Roth IRA and SEP Planning
As most of you know I’m not a huge fan of saving money just to save money. I currently fund my 401k to the max employer match, but other than that I would rather invest my money in items that depreciate slowly than leave it setting in a savings account drawing minuscule interest.
Well, after tax time this year, I have decided to try and change that. Since I have to pay in so much on my un-taxed income from my business at year end, I decided to offset some of that by funding a Roth IRA or a SEP retirement account (which is fully tax deductible.)
I started a Roth IRA (pre-taxed money in, untaxed money out) last week and intend to fund it to the max contribution by next year. Currently the max for this year and 2008 is something like $4000 a year. Invested, somewhat aggressively, this should be in the neighborhood of around 800,000 by retirement if I keep contributing the max until then. (9-10% gain over 40 years)
This year I plan on getting in the habit of paying in monthly as a regular bill and then at year end just dumping in a one time contribution from by business checking account to either max it or come close and then doing that in the future every year.
One thing that is really crappy about having a small business is that if you make under the limits needed to form a corporation, you cannot “carry” any income of funds from one year into the next without paying social security tax on them. (In a sole proprietorship and LLC, everything is counted as personal income.)
So my plan is to offset some of these taxes with a SEP and Roth IRA until I can grow my revenues to a point where I can incorporate. It really turns out to be a win win situation as I get more for retirement and save money on taxes, but it’s hard to just put all that money away and not spend it on something concrete!
Here’s to another 40 years of saving!
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