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A simple solution for
the one-person (self-employed) business owner!
 ITIPress.org
- Soraya Nasrallah
Ok, so you
have your own business, company name, business bank account and you are
rolling along selling your product and /or services! Everything is looking
pretty good and you are starting to make some money. You have decided that
you don’t want to re-invest all of your profits back into your company
because you know that the only way to move ahead financially, on a
personal level, is to invest some of those profits so that they may grow
to a respectable sum of money that will help you retire in style! You are
not sure what to do about it, but you do know that you would like to save
money on taxes. Currently you only have basic fixed and variable expenses;
for example, home, car, electric, phone and some credit card bills. Your
main goal is to save for the future and invest part of your profits to the
company while working on what you love to do! After all, it is the only
way to be happy and successful at the same time!
Let’s review
the facts to this particular situation:
-
You have a business
and it is bringing you some decent profits
-
You don’t want to
invest all of your profits back into the company
-
You want to defer
taxes and save for the future
-
Your bills are basic
and you are not thinking of adding any other expenses that will effect
your monthly expenditures
-
You want to have a
great time working and would like to retire in style
Here is a plan for this type of situation. Keep in mind that even though
every scenario may require a different plan, the basic plan that I am
mentioning here will go well for a wide variety of circumstances. Note
that this type of solution applies to a one-person business and that
certain conditions apply (these conditions will be briefly mentioned).
A simple solution for
the investment needs of the one-person (self-employed) individual.
-
The key is to open a
Self-Employed 401(k), which must be established by December 31st.
Contact you investment adviser
-
You must be a
self-employed individual or business owner that does NOT have employees
OTHER than your spouse
-
Contributions are as
follow: employer contributions are due by employer’s tax filing deadline
plus extensions and salary deferrals for owner-only plans are generally
due by employer’s tax filing deadline plus extensions
-
Employer contribution
is up to 25% of compensation up to a maximum of $42,000.00 in the year
2005. This allows you to defer taxes on a LARGE sum of money. At
the same time, it offers you the opportunity to invest or keep aside a
substantial amount of cash
-
My recommendation is
to invest this money (for example) the following way:
Investing $42,000.00
(before tax) scenario for 2005 inside your NEW Self-Employed 401(k)!
-
$30,000 into the
no-load Fidelity Four-In-One Index Fund. Symbol for this fund
is (FFNOX). The management fee is 0.36%, no 12-b1 fees and if
you try to sell this fund within 90 days you will be assessed a
short-term trading fee of ½ of 1 percent (.50%). The minimum for this
fund in a retirement account is $2500 and for a non-retirement account
it is $10,000.
-
This fund invests
your monies the following way:
1.
55% into
the S&P 500
2.
15% into
US small & mid cap stocks
3.
15%
international index fund (remember that we are moving more toward a global
economy)
4.
15% in US
bonds which offers your money a cushion during market turbulences
-
The remaining
$12,000 should be left alone within the 401(k) gaining interest. This
allows you to have additional monies that can be available for any
other investment opportunity that may show up. Remember; don’t put all
your eggs in one basket.
-
By investing this
lump sum amount into your Self-Employed 401(k), you will be able to
defer that amount from your taxes, thus ending up with a smaller or no
tax liability
Send your questions to
Soraya@TheInvestor.tv
"Most people are about as happy as they make up their minds
to be." - Abraham Lincoln |
