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RealnetCO.com |
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VA Buyers srill get a $8000 rebate!
What is a solo or Individual k?What is an Individual (k) Plan The Individual (k) Plan is a Self-Directed 401(k) for Business owners with no employees, their spouses and partners only. The Individual (k) Plan, is made available as a result of tax law changes effective in 2002. The Individual (k) Plan is appropriate for an owner only, plus spouse or partners, who wish to self-direct their plan investments. Business included are corporations, partnerships and sole proprietorships. It is not appropriate for businesses with common law employees. Individual (k) Plan Features:
Retirement plans generally fall into two types: · plans that are primarily funded by employer contributions and · those, including 401(k)s, that involve pay deferrals by employees. The distinction is often insignificant for the self-employed, because they are in essence both employer and employee. In some plans, including 401(k)s, business owners can make both employer and employee contributions. Under current law (2001), there is generally a 15%-of-pay cap on the combined sum that employers and employees can contribute annually to 401(k) plans on a tax-favored basis, as much as $170,000 in pay. That 15% cap will rise to 25% of $200,000 in pay next year. From 2002 until 2012 employee deferrals won't be counted toward that 25%-of-pay limit, making it possible for owner only businesses to make a large employer contribution and then also make the maximum $11,000-a-person deferral in 2002. The 2001 tax law changes also allows people 50 or older to make additional "catch-up" contributions in 2002 of $1,000 a year to a 401(k) plan. For sole proprietorships, the percentage-of-pay limits apply to compensation after plan contributions are subtracted (and also after deducting one-half of self-employment tax). Which makes the 15% and 25% figures actually 13.0435% and 20% of earnings respectively before those contributions. Also, the combined employer and employee contributions are subject to a flat-dollar cap -- $40,000 a person in 2002, after rising from $35,000 this year. The one-person 401(k) offers the biggest potential benefit for one-person businesses earning between $50,000 and $160,000. You, as the business owner, must also consider that if you are also a corporate employee already participating in another 401(k) plan: An individual's deferrals in both plans together can't exceed the $11,000-a-person cap in 2002. Example: A person earning $100,000 in a one-person unincorporated business, will be able to put $28,000 or more into a 401(k) in 2002, thousands of dollars higher than in most other types of tax-deferred plans. 1 People age 50 and older can make additional "catch-up" contributions of $500 for a Simple plan and $1000 for a 401 (k) 2 Net Profit Minus one-half of self employment tax. Contributions for Incorporated business may be higher NOTE: Simple is Saving Incentives Match Plan for Employees SEP is Simplified Employee Pension Plan
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