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Question:


I own a small business. How much of my revenues should be saved for retirement?
-BizOwner10453


Answer:


It’s difficult to answer this question because I don’t know if you’re trying to figure out how much to save for yourself and possibly your spouse or how much to set aside for your employees, if you have any. If it’s the former, and you have no other employees, then you should set up a 401(k) or similar qualified retirement plan and try to contribute the maximum amount that qualifies for federal and state tax deductions. These are taken at whatever your top income-tax rate is, so it’s always a good idea to save that much, if possible. In 2014 the limit on so-called elective deferrals – what you can contribute as employees – is $17,500, or double if your spouse works for your business, or $23,000 for each of you who is 50 or older. You can make additional deductible contributions in your role as the employer. The amounts depend on how much profit your business earned.

If you have employees other than your spouse, then things get complicated because generally you have to provide them with retirement benefits at the same rate of employer contributions that the executives, meaning you, receive. You should consult a financial adviser who specializes in small-business clients to determine the right amount of contributions to pay, but that probably should be based not on revenues but on profits. Two businesses can take in the same amount of revenues and have very different profits to show for it.

-Conrad de Aenlle



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