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Is it time to start a retirement plan?

December 12, 2008

Self-employed taxpayers can get some great tax-savings opportunities via retirement plans. While SEP-IRAs the easiest type to set up, they aren't for everyone. If you have multiple employees, they provide very little flexibility. Also, a taxpayer with substantial self-employment income and no employees might achieve a much great deduction - up to --- via a "solo" 401(k) profit-sharing arrangement. A self-employed taxpayer who doesn't participate in another 401(k) plan can shelter the first $15,500 of self-employment income via such a plan; the total 2008 contribution might be as large as $46,000. This can provide a nice tax benefit for, in effect, taking money out of one pocket and putting it in another pocket.

Calendar-year taxpayers have until the end of December to formalize a qualified pension or profit-sharing plan for 2008 (SEPs, in contrast, can be put in place as late as the extended due date of the 1040). If you are interested, you should move on this immediately, as even the most accomodating plan provider needs a little time to get the paperwork in order.

Check back daily for more 2008 year-end planning ideas.

Tags: year-end tax planning.