URL: http://www.abqjournal.com/biz/yourmoney/matt06-99.htm

SAGE June, 1999
Piggy-Bank Scramble
Even a very small business should have a retirement savings plan
By Lee Mathhew / Illustration by Robin McClannahan
    If you have any type of self-employment income, think about contributing to your financial future through a small-business retirement plan.

    Whether you're a sole proprietor, partner or owner of an incorporated or unincorporated business, or if you've developed an income-producing sideline to your regular job, using a tax-deferred plan to help build your nest egg might be a real advantage.

    Today, you may choose from several relatively low-cost alternatives that are easily established and require minimal reporting. For small business


    Most New Mexico businesses are small -- very small.

    According to U.S. Department of Commerce census data for 1996, three-fourths of New Mexico business establishments with a payroll had fewer than 10 employees.

    A whopping 87.7 percent had fewer than 20 employees. (Note: these figures exclude most government employees.)

    Running a small business creates enough headaches without trying to figure out how to put a retirement plan in place.

    But consider the reality: We're looking at a longer life span, potentially lower Social Security benefits and a steady decline in purchasing power caused by inflation.

    If you're self-employed, chances are you won't be retiring with a substantial corporate pension.

    If you don't plan for your future, who will? Gather the data


    The best way to choose a retirement plan is to gather some basic information about your business: the type of business (sole proprietor, partnership, corporation); the level of net earnings; the pattern of income (regular payments, relatively unpredictable lump sums); the number of employees; and what each employee is paid.

    Take this information to your financial planner or tax adviser for help in determining the best plan for your business.

    The chart accompanying this article indicates some of the main features of five types of retirement plans commonly used by small businesses.

    However, the newest member of the group deserves special mention: Thanks to the Tax Reform Act of 1997, the SIMPLE-IRA has filled an important gap by offering salary deferral together with ease of administration and low cost.

    "SIMPLE" stands for "Savings Incentive Match Plan for Employees."

    Depending on your income level, this type of plan might allow you to contribute more income to the plan than the other choices. Ask your planner to calculate your alternatives.

    If you have employees, the SIMPLE-IRA might be a way to offer the benefits of a retirement plan without having the business bear the entire cost of plan contributions.

    There's no complex IRS reporting, the employer contributions are flexible within limits, and plan administration is easy and low-cost.

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Lee Matthew is a financial planner in Albuquerque. She is an associate of Kathleen Winslow & Associates LLC and an investment adviser and registered representative with Financial Network Investment Corp., a securities broker/dealer (member SIPC).