How to Maximize Your Tax Savings !!

One of the great retirement plan options for the smaller employer is the SIMPLE Plan. The term SIMPLE given to this is an acronym for Savings Incentive Match Plan for Employers. The SIMPLE Plan first opened in January 1997. More people have realized its advantages these last few years. Designed for companies of 100 or fewer employees, it is a very efficient tax retirement plan. Let me explain.

The SIMPLE Plan is particularly advantageous for the modest income employer and the self-employed. These people can shelter a larger amount without worrying about maximum percentage contributions. For the self-employed person earning just under $70,000.00 per year or less, this plan is almost perfect. If you find yourself in that situation, here is how it works.

You, as the employer, establish a SIMPLE Plan document. As the employee, you can defer up to $6,500 (indexed for inflation) per year of earned income into the plan. You don't have to defer $6,500, you can choose any amount up to a maximum of $6,500. Then, as the employer, you can match the first 2 or 3% of earned income. Thus, your maximum deduction for taxes could be up to $6,500 plus 3% of earned income.

Let me illustrate this for you.

• Assume we have a self-employed person with no employees working for them.
• Assume we earn a net of $20,000 after all business deductions using IRS Schedule C for the self-employed.
• Assume we want to take the maximum tax deduction that we can. And, we will assume that we have the money to invest to get this tax deduction.

Net Self-Employment Income (Schedule C)	$ 20,000
Maximum SIMPLE Plan Contribution	$   6,500
Employer Required Match at 3% (of $20,000)	$      600
Maximum Deduction (Adjustments to Gross Income/Form 1040)	$   7,100

Notice how you can maximize a tax-deductible contribution on a modest income using the SIMPLE Plan. This option can help make up lost time for retirement planning. It can greatly reduce current taxes. You can shelter more money from the IRS with a SIMPLE Plan.

There are several technical details we can handle for you. The adoption agreement covers eligibility for employees, if you have any. There are IRS penalties for early withdrawal. The regular 72(t) rules for retirement apply.

This brief summary and example should help you. The SIMPLE Plan is a great retirement plan for the smaller business. A business owner can maximize their deductions, maximize their current tax savings and plan for their retirement.

NOTE: Dale Hedstrand is a registered principal associated with AIG Financial Advisors, Inc., Member NASD/SIPC. Before proceeding further, please be advised that Dale Hedstrand is licensed to discuss with or offer investment and financial services and products only to residents of AL, AZ, CA, FL, ID, MD, MI, MN, MO, NH, NM, ND, OH, OK, OR, SC, SD, UT, VA, WA, WI, WY. Securities related services may not be provided to individuals residing in any state not listed above. The information offered is for informative purposes only. None of this information is to be construed as an offer to buy or sell securities referred to within or otherwise. Neither Dale Hedstrand nor AIG Financial Advisors, Inc makes any guarantee as to the accuracy or completeness of this information.

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