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Planning for one’s retirement is a task that everyone must face, whether they have the time to or not. With so many options out there, from 401(k)’s to IRAs, it can be difficult to choose what to go with since the rest of your life will depend on it.

Many people can rely on employer-provided retirement options such as SEP (simplified employer pension) plans to set aside money. However, for entrepreneurs and the self-employed, qualified retirement plans (QRPs) provide an alternative that is financially beneficial in various ways.

What are ‘QRPs’ Exactly?

QRP stands for qualified retirement plans; in the simplest term, a QRP is a pension plan that allows tax deferment for self-employed workers to prepare for retirement. Sometimes referred to as a Keogh plan, these entities allow entrepreneurs to take advantage of various tax planning strategies and ultimately have greater control of your cash than would be possible otherwise.

QRP Advantages:

Investment Control –

With a QRP, you are allowed to act as the plan’s trustee which means, unlike an IRA, you do not have to go through any other custodian when making your investment transactions. Cutting out the middleman in this fashion ensures speedier transactions and avoids custodian administration fees.

QRPs also allow entrepreneurs to place their money in a broad range of investments from stocks and bonds to futures, securities, and currency too. These plans are also useful for real estate transactions, such as rentals and tax liens. Furthermore, QRPs are governed by different tax laws than IRAs, which means they can be used to acquire real estate using mortgages without having to worry about UDFI tax.

Account Consolidation –

Another luxury that these plans provide is the ability to consolidate all of your other outstanding retirement accounts like 401(k)’s and IRAs into one place and manage those funds more efficiently. Furthermore, if you have a spouse who also is contributing to multiple retirement accounts of his or her own, those accounts can also be moved into the plan.

Tax Contributions –

QRPs allow entrepreneurs to make tax-deductible contributions for both themselves personally and their businesses, which can then grow tax-deferred over time. This freedom takes full advantage of compound interest returns and helps you save ultimately more money than you would if your contributions were subjected to taxes.

When you reach age 55, you can begin to make penalty-free distributions; however, at age 70 ½, you are required to start taking minimum distributions so bear that in mind. These plans are also available with Roth distributions meaning that while you won’t receive upfront tax deductions, akin to a Roth IRA, the distributions are received free from income tax. This is only scratching the surface when it comes to the QRP’s tax-saving potential.

Plan Borrowing –

Sometimes life and circumstances can force you to need extra money to work with; if you are invested in a regular IRA then withdrawing money from it will, unfortunately, incur penalties and taxes. However, you are allowed to borrow money from a QRP’s account balance up to $50,000. This loan is seen as an investment, and you can pay the interest on it back to the plan itself. In essence, you can borrow money from your plan when you need it then pay it back with interest to yourself thus letting the QRP make money on you versus a bank or other credit lender.

For entrepreneurs looking to save for the future and have as minimal interference from other parties as possible (typically a primary reason to become an entrepreneur in the first place), qualified retirement plans are worth consideration. They provide a means to save a significant amount of money, plan for the future while also having access to capital without worrying about paying back a bank or other credit company. All this is accomplished under your administration, not through third parties who can collect fees from you.

If you are interested in learning more about the tax shelter and savings capabilities of qualified retirement plans or are sold on the concept and want to get started, then contacting our office to speak with one of our advisors is a good way to begin the process.

As always, take advantage of our free educational content and every other Tuesday we have Toby’s Tax Tuesday, a great educational series. Our Structure Implementation Series answers your questions about how to structure your business entities to protect you and your assets.

Additional Resources:

• Claim your FREE Strategy Session
• Join our next Tax & Asset Protection event to learn more advanced tax minimization & entity structuring strategies
• For all things investing, check out the Infinity Investing YouTube channel
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