Articles - Archived Expert Advice

Starting a Small Business

I am scheduled to retire in 2011 after 36 years of service in local government. The thought of retirement makes me restless, so I am interested in starting a small business. Will my decision help me preserve my current retirement savings? If so, what tax-advantaged accounts should I consider for saving this income?

It looks like you've been doing your homework. Starting a small business can be a great way to keep active, while potentially allowing you to postpone withdrawals from your retirement savings. Before starting your small business, consider speaking with an accountant about the tax implications it may have on your Social Security benefits. You'll also want to be aware of the startup costs and overhead, as they could rapidly deplete your savings. Crafting a business plan and exit strategy is a good place to start. The importance of these steps cannot be stressed enough. They will help you avoid unnecessary losses that could possibly require you to stay in the work force longer than anticipated.

To address your second question, two of the most popular tax-advantaged accounts used by small businesses are the SIMPLE IRA and the Simplified Employee Pension (SEP) IRA. These accounts allow individuals over age 70½ to contribute earned income for additional savings. Keep in mind that your small business income may help cover items such as medical expenses and vacations, which can quickly diminish retirement savings. For details about account features and annual contribution limits, visit www.irs.gov.

Should you consider establishing a SIMPLE or SEP IRA, stop by your local branch or contact the Call Center at 888.732.8562 to open and start funding the account. The minimum deposit is just $25, and all IRAs are insured up to $250,000. LGFCU has credentialed staff to assist you with specific retirement needs. Just call us at 877.367.5428.