January 2003 On-line Tax Planning

Owner-only 401(k) Plans A New Opportunity

Do you run your own business alone or with a partner - but without the help of other employees?  If so, new tax rules may make it beneficial for you to start a 401(k) plan.  Similarly, if you already have a profit-sharing plan, adding a 401(k) salary deferral feature to your existing plan may allow you to set aside more money for your retirement on a tax-deferred basis.

Defer Salary
With a 401(k) plan, you elect to set aside a portion of your annual compensation.  In 2003, the tax law allows you to defer as much as $12,000 of compensation - $14,000 if you are age 50 or over.  These annual deferral limits are scheduled to increase to $15,000 and $20,000 by 2006.  You are not taxed on the deferrals, or on plan investment earnings, until you receive distributions from the plan.  Your business deducts the deferred compensation as an expense.

Contribute More
That's not all the law allows, however.  At your discretion, the business also can make additional tax deductible profit-sharing contributions to the plan on your behalf.  (Total annual additions to your account are limited to $40,000.  Other limits apply.)  The combination of your annual 401(k) deferral, your company's profit-sharing contributions, and plan investment earnings could result in a sizable nest egg by the time you retire.  If your spouse works in your business, note that he or she would be able to participate in the plan as well.

Please give us a call, at your convenience, for more information.

Tax Planning Archives

For More Information Contact:

Bucheri McCarty & Metz LLP
2366 W. Boulevard
P.O. Box 2147
Kokomo, IN  46904-2147

Telephone: (765) 236-2300
FAX: (765) 236-2333
Internet: info@bmmcpas.com