A Dog Pro’s Retirement Savings Plan. Really? Yes, this applies to you!

faq-sidebar-01-300x401Transitioning from being employed by someone else to becoming a self employed dog professional has many implications that will impact your financial future. While you’re busy creating marketing plans and budgets to get your business off the ground there is often one area that is overlooked.  Your retirement.

Does this sound familiar? While you were an employee, you were likely encouraged and probably did participate in a 401K program that your employer offered.  However, when you decided to leave and start your own business, you turned your attention to generating cash to build your business.  In fact some of you may have (or are considering) withdrawing your retirement savings to start the business.  This is a very costly move both in the short as well as long term and is not a route to financial security. Why?  Because there is a 10% penalty on the amount of money you withdraw and because it depletes your entire savings account that would otherwise grow tax free.

So what do you do? You could borrow the money elsewhere or scale back and control your expenses until you can afford to finance your operation from the cash flow your business generates. But don’t touch your retirement savings!!!!

OK, let’s assume I take your advice.  Now what?

You can roll your 401K into a traditional IRA, or better yet, as a business owner and dog professional you can start your own SIMPLE Retirement Plan and roll the 401K into it. A SIMPLE IRA will not only house your existing 401K money but will allow you and the business to make further contributions to it. Even if you don’t have a 401K to roll over, you can start a SIMPLE IRA and start saving for your retirement right away.

How much can I contribute?

For 2014 you can contribute any amount up to $12,000 (or $14,500 if you are over 50)  into the plan.

How much does my business contribute?

A maximum of 3% of your contribution.

Let’s look at an example.

Let’s assume you pay yourself $10,000/year and elect to contribute 5% of your compensation to the SIMPLE IRA you’ve established for your business, Dog Pro Extraordinare, LLC.

Your contribution through salary reductions  ($10,000 * 5%) =  $500
Dog Pro Extraordinare LLC’s contribution ($10,000 * 3%) =  $300
Total contribution to your retirement plan  =  $800

The amount of the contribution is totally up to you. You can decide to save whatever percentage or fixed dollar amount you want, (you could choose 20% for example or the entire amount of your salary) but the maximum the company is allowed to contribute is 3%.

Let’s look at the impact of a contribution. Let’s assume you contribute $800 today into your SIMPLE IRA, and that investment earned 3% interest for the next 30 years, that investment would be worth $1,950 or 243% more than what you started with. Imagine what you would have if you did this every year for the next 30 or so years until you retired.


A SIMPLE IRA has many advantages that both you and your business benefit from.

  • Both the business as well as your individual portion of the contribution is deductible. This means the Self Employment Earnings tax on your business will be lower.
  • You can deduct 50% of the costs associated with starting-up and establishing the plan up to $1,500!
  • If you have employees, they can participate in the plan with you.
  • Relatively little administrative effort on your part.
  • You can receive a refundable tax credit on your personal tax return up to $1,000 ($2,000 if married filing jointly) for your contributions. This means even if you have no income, the government will give you up to $1000 for contributing to the plan.
  • You do not report the amount you contribute as wages on your tax return. This means your tax bill will be lower.  Instead of paying the government, the government is actually paying you to save.
  • Earnings in the SIMPLE IRA grow tax free until withdrawn.  No taxes until you retire on any earnings in the account.
  • Maximum contribution levels are higher than a traditional or Roth IRA. You can save more each year.
  • You can pick either a percentage of your wages or a fixed dollar amount to contribute.  The plan is flexible.

Remember…Saving for retirement is an important step in securing your financial future.  Seeking guidance from a knowledgeable tax professional can get you started down the right path.

IRS Circular 230 Tax Advice Disclaimer: Pursuant to requirements related to practice before the Internal Revenue Service, you are hereby advised that any written or electronic tax advice contained herein (including any attachments, enclosures, or other accompanying materials) was not written or intended to be used, and cannot be used, by any taxpayer for the purposes of (i) avoiding penalties that may be imposed under the U.S. Internal Revenue Service Code or any other taxing authority or (ii) promoting, marketing or recommending to another person any tax related matter.

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