Providing Self-Employed Benefits

There's great freedom in having your own rental business. But it can be too easy to neglect your own benefits, especially if you're starting up and inclined to pour all your profits back into growing your business.

Corporate employees can depend on their employers to implement forced savings plans like 401(k)s. If you're on your own, you have to implement your own plan, write a check each month to an implemented plan, and this takes discipline. But if you don't provide a retirement savings plan and health-care insurance, you face a troubled future, no matter how successful your business is today.

Retirement Plans

Face it, for most people, Social Security isn't enough. There are a variety of different options for the self-employed, each with different contribution limits, employer and employee requirements and deadlines, but here's a quick overview of some of the more popular plans.

If you are a sole proprietor, a solo 401(k) or SEP-IRA plan may work for you. SEP-IRA is open to the self-employed and business owners with or without employees. Employer contributions are limited to 25% (up to $45K) (for 2007). Employee contributions are capped at $4K a year if under 50, and $5K a year if over 50. Self-employed can contribute up to 20% (or $45K), whichever is lower.

A SIMPLE IRA is open to the self-employed as well as business owners with 100 or fewer employees. Employers make a matching contribution of up to 3% of each participant's compensation (up to $10K) or a flat contribution of 2% of each eligible emplyee's compensation with a max of $4,500 per employee. Employees may contribute up to $10,500 ($13K if over 50) (for 2007). If you have employees, consider a SIMPLE plan. These have no administrative costs and employer match is limited to those employees who choose to make contributions. Also, a SIMPLE plan is the least expensive way to put a significant amount away each year for yourself. But size matters. If you have more than 20 employees, you may want to implement a 401(k). Fewer than 20 employees and the annual administrative costs of a 401(k) become burdensome. For this reason, if you have only a few employees, a SIMPLE plans have relatively low administrative costs, but they also don't pemit employees to defer as much as a 401(k) does.

A Solo 401(k)/Self-Employed 401(k) is only open to the self-employed and business owners with no employees other than a spouse. Employer contributions are capped at $45K (under age 50), and $50K (over age 50). You can save $15,500 ($20,500 if over 50) in salary deferral and for the profit-sharing, you can save up to 25% of W2 compensation for incorporated businesses or 20% of self-employment income for sole proprietors. Employees may not contribute, but spouses may contribute the same as the employer.

A profit-sharing or KEOGH is also open to the self-employed and business owners with employees. Employer contributions are limited to 25% (up to $45K) (for 2007). Self-employed can contribute up to 20% (or $45K), whichever is lower. Employees may not contribute.

Health Insurance

Cost and availability of health-care insurance is the biggest problem for small businesses, according to a recent survey by the National Federation of Independent Business. But that doesn't mean you should abandon the effort to get health insurance. An accident or unexpected illness could easily put both your personal finances and business at risk. Even if premiums seem prohibitively high, at least try to buy a policy that covers hospitalization and catastrophic illness.

The first place to look is on the open market, whether you use an agent or do it yourself. The internet is a good resource here. Remember that you can do without vision and dental coverage and adjust co-pays or deductibles to make the premiums lower. Several companies will write small group plans. Generally they require at least two participants, but the other one can be a spouse. Also contact any professional associations or trade groups you can find. Such groups sometimes offer their members reduced rates on insurance. But check with your state insurance department before joining any group you've never heard of. Many such groups are not legitimate, but have been formed in response to the health insurance crisis.

Disability Insurance

If you're the sole proprietor of a small business, the likelihood is excellent that without you, there wouldn't be a business. But the good news is that disability insurance is usually very inexpensive if you're in good health. State laws vary, and if sole proprietorships, LLCs and partnerships are allowed to participate in state disablity plan, this might be your best and least expensive option. If not, comparison shop, both online, through an agent or through association and trade groups. If you can gain access to a group plan, your costs will be substantially lower.