Small Business Retirement Planning Without The Handcuffs

If you Google the term small business retirement planning, you're most likely to encounter all the "qualified" retirement plans that a small business owner can set up for himself and his employees. But you won't find the little-known secret I'm about to share with you under that term on the internet.

You'll read about the brothers SEP and SIMPLE and their cousin Keogh. Your accountant might have already told you about these guys.

SEP which stands for the simplified employee pension, was introduced in 1978 to allow the small business owner and his/her employees to establish and contribute to an IRA (individual retirement account).

The maximum amount that each person of the company can contribute is the lesser of 25% of the annual compensation (up to $225,000 ) or $45,000 (both figures are for 2007). However, as mentioned before, you must open the plan for every employee to participate.

SIMPLE which stands for Savings Incentive Match Plan for Employees is a small business retirement planning tool available to you. To be eligible, your company can have a maximum of 100 employees who received at least $5,000 in compensation from you during the previous year.

This plan can be structured as an IRA, or a 401(k) cash or deferred arrangement. Your employees may defer up to certain amount each year ($10,500 in 2007) and you in turn are allowed to make a dollar-for-dollar contribution up to 3% of the employee's annual compensation.

However, once the money is in the SIMPLE IRA or SIMPLE 401(k), it's in there to stay. Further, there's no vesting period. It's available immediately to the employee.

The Keogh is a qualified plan designed for the unincorporated business that allows you, the business owner to participate as an employee. Today, this small business retirement planning tool very closely resembles the plans you would find in a big corporation. The Keogh is subject to the same maximum contribution limits and nondiscrimination rules as qualified corporate plans.

If you have one of these already set up for your company, wonderful.

But there is a better small business retirement plan that you should know about. It is especially designed to: help you accumulate wealth at warp speed accelerate the payoff of your mortgage build up your kids' education fund faster than you thought possible get you to early retirement before your golden years provide the money to grow your business before you sell it (if you ever want to sell) Increase cashflow for your business

Some have called it a small business retirement plan on steroids. Here's what it's all about.

As a small business owner, you collect receivables consistently or in spurts (intermittently). These funds are usually transferred to a business checking account until they are needed for payroll, inventory purchase or other business expenses.

The banking institution where you deposit these funds, is not in the business of having your money work for you. The bank is in the business of using the money in your business checking to make money for itself, by lending it (even to you sometimes) at a higher interest rate. This is why your bank often requires you to maintain a minimum balance to avoid certain fees.

Can you think of a good reason why your own money shouldn't work for you? Why should it work for the bank and not for you? Perhaps you didn't know how.

Well, your bank is not going to like this one bit, but here's a secret you ought to know. There's a small business retirement plan that allows you to use the money that sits idly in your business checking account to work for you.

The plan, called a Retirement MAP which stands for Mortgage Acceleration Plan allows you to

Here's what you do. You simply convert your existing loan into a home equity line of credit that has a built-in checking account. Instead of maintaining a business checking, regular checking, savings account separate from your mortgage, you combine them into one account.

You see, interest is calculated on the average daily balance of the principal on your mortgage. By combining your resources in one account, every penny that is not being used right away contributes immediately towards reducing the principal on your mortgage.

However, as soon as you need the funds for a business expense, or whatever other reason, you simply write a check out of your account (remember, it has a built-in checking account). Your money is always available. Both your home equity as well as money that comes into your business.

But until you need them, they are doing double duty. They're working for you by decreasing the principal on your loan and thus also decreasing the amount of interest owed on your mortgage.

Another big plus with this plan especially for a small business owner is that you don't ever have to choose between meeting payroll, having emergency funds for a business expense or paying the mortgage in the even of a temporary cash crunch.

Because you always start each month with a lower principal balance, you always have a cushion in your account that allows you to defer a payment if you need to. Since this is not a traditional mortgage account, there's no fear of a derogatory mark on your credit for missing a payment.

Let's fast forward the clock a little. Let's say you were to qualify for this program and 7 years from today (or less) you no longer had a mortgage? What would life look like then? Would you then put more money in marketing and growing your business? Or would you sell it and retire? Maybe you'd divert the old monthly mortgage payments towards investments for your retirement account?

Whatever your answer may be, this small business retirement plan is worth exploring. Of course, you want to run this by your accountant to make sure this plan will not effect how your business is set up currently.

Contact me for a no-cost, no-obligation planning session today

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