Several employees have good benefits that are provided by their employers
. There are several reasons why businesses want to provide benefits to their employees. One major reason might be that the business receives tax benefits.
The tax benefit is that it postpones paying tax dollars. The decision for the business is to keep the profits through giving it to the employees or give them to the government in taxes. There are several other benefits for self-employed individuals to save for retirement through the Economic Growth and Tax Relief Reconciliation Act from 2001.
There are several retirement plans for small businesses to choose from. The most common and popular is the self directed IRA and the 401K. Choosing between these two might be a tough decision.
There are several benefits in a self directed IRA. The first is that it is easy to set up and manage. Another and more popular benefit is that the control of the account lies in the hands of the investor.
The control gives investors the ability to choose their own investments and gives them the chance for a diverse portfolio. A diverse portfolio has the advantage because it is more successful than strict ones. A custodian also comes with the self directed IRA to help investors manage the account.
A large benefit for the business is that it can have the IRA contributions as a business expense. The investors do not even have to pay tax on the profits in the IRA until they withdraw them. Employees and employers need to aware of the current contribution limit.
The Solo or Individual 401K is the other popular option. This is best for a business where the only employee is the owner and his or her spouse. The limit on the contribution amount in this account is larger than the IRA.
There is a limit on the employer contribution amount in a 401K that can be tax deducted. The limit is 25% of the gross eligible payroll. There is an allowance of a "catch-up" amount of $5,000 for individuals 50 years old and over.