Equine Business Savings and Retirement - 401(k) Plans

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Retirement Plan

Editor's note: In honor of Labor Day, we are dedicating a series of articles in September to savings and retirement options for those who work in or own equine businesses. This is the first in the series.

Financial experts predict that individuals will require 75-85% of pre-retirement income during retirement years. Determining which type of retirement plan is right for you depends on your age, target retirement date and risk tolerance.

Eligible business owners have the benefit of offering a 401(k) retirement plan to employees as well as funding a self-employed 401(k) plan.

Public and privately owned companies that hire employees have the option of offering a 401(k). These 401(k) plans allow for tax-deferred growth and are tax-deductible. Most 401(k)plans typically include an employer matching contribution.

Based on current IRS guidelines, participants can contribute up to $18,000 annually to a 401(k) plan with an additional “catch-up” contribution of $6,000 annually for individuals age 50 and older in 2016 and 2017. Participants have the added benefit of taking a loan against their retirement savings if needed.

There are guidelines based on the number of employees and annual earnings that determine if and how a business offers a 401(k) plan to employees. Working with a financial planner will help you determine if this is the best fit for you or your equine business. Retirement planning tools such as CNN’s retirement site (money.cnn.com/retirement) are also available online to help you get started.

If you don’t have employees and would like a 401(k) plan for yourself, a Self-Employed 401(k) plan might be an option. This retirement plan is limited to those who are self-employed or owner-only businesses and partnerships. These plans also allow the owner’s spouse to participate in the retirement savings. These plans have maximum contribution limits with additional catch-up opportunities for individuals age 50 and over, who are allowed up to $5,500 annually.

For the younger demographic, getting started is priority number one, even if it is only $25 a week. Don’t despair if retirement savings has not been a priority. It is never too late to begin saving. And for individuals age 50 and over, additional savings opportunities known as “catch-up contributions” are available.