Hitting The Books

Paying The Piper

So you're set on building your business . . . so set, you plan to live off your savings for a while and put everything back into your company. That's fine for those with a big nest egg, but most advisors suggest you pay yourself just as you would any creditor.

How much should you pay yourself? Consider taking a minimum of 10 percent of your receivables as salary. If you don't need it to live on, stash it in an interest-bearing account until you need it. Use it to build your business, hire help, go on a well-deserved vacation or add to your retirement fund.

Studies show that homebased business owners cite retirement as a top financial goal, yet few actively save for it. Instead, many entrepreneurs are counting on proceeds from the sale of their business to fund their retirement. Most business owners are familiar with the traditional IRA (with its $2,000 maximum annual contribution, tax-deductible if adjusted gross income thresholds aren't exceeded) and the new Roth IRA (its $2,000 maximum annual contribution is not tax-deductible, but it grows tax-deferred and is withdrawn tax-free at retirement if certain conditions are met). Many, however, have never heard of another type of IRA that allows many small-business owners to save much more for retirement: the Simplified Employee Pension (SEP) IRA.

Unlike traditional IRAs, SEP plans are easy to establish and maintain. SEPs allow business owners to deduct up to 15 percent of their annual compensation up to $24,000, indexed for inflation. Plan contributions are flexible, so if cash flow is a problem, you aren't required to make one. Best of all, if you're a bit late with your taxes, SEPs can be opened and contributions made until your taxes are filed.

What's the minimum you should contribute to a retirement plan? That depends on your age, earnings and financial goals, so get additional information from your tax and financial advisors before taking action.

« Previous 1 2 3 Page 4 5 6 7 Next »
Loading the player ...

Tim Ferriss on Mastering Any Skill

Ads by Google

Share Your Thoughts

Connect with Entrepreneur

Most Shared Stories