Becoming a successful Artist takes hard work - a working plan can help you to enjoy it!

by Keith Jackson

Over the past two years I’ve written articles on the importance of women investing in their own futures and the special challenges they have; business succession and 401(k)s. We’ve even discussed ensuring that you the Artist can pass on a legacy that you have taken so much time dedicating your life to create. We have covered a lot of strategies for managing and building wealth, including strategies that could systematize your getting paid on that legacy while you are still able to enjoy it!

A few weeks ago I spoke to a room full of entrepreneurs and presented some ideas and techniques for small companies suggesting they create or review their process for building and managing wealth. An idea of great interest to the group was that of what options exist for a small company owner looking to plan for that next phase of their life? If they have employees, how can they bring that kind of value to them as well? As artists, make no mistake, you are a business owner, even if you are a small business of one. You may be able to work well into retirement, but what happens when life says you have to stop or you are just ready to slow down and enjoy the fruits of your labor? The answer, no matter how you look at it, is planning.

In the past we’ve talked about the 401(k) retirement savings plan. It remains an extremely popular employee benefit. Unfortunately, because 401(k) plans require an extensive amount of paperwork and come with high administrative costs, many small business owners have decided against offering them to their employees. What’s more, mandated annual nondiscrimination tests — and the potentially negative impact those tests could have on the amounts highly paid managers and owners can contribute — add little to the 401(k) plan’s appeal in the eyes of the small business person.

Still, today’s small business owners recognize that both they and their employees need to be proactive when it comes to saving for retirement. In 1996, Congress created the SIMPLE IRA to make it easier for small employers, including self-employed individuals with no employees, to offer a tax-advantaged retirement savings plan. The SIMPLE IRA offers many of the advantages of the 401(k) plan — without the administrative burdens.


Here is a potentially viable plan that may be indispensable for you - a SIMPLE IRA. In simple terms (no pun intended) here are some key features:

Eligible Employers. An employer (or self-employed individual) without an employer-sponsored retirement plan can establish a SIMPLE IRA plan if, during the previous year, there were no more than 100 employees on the payroll who earned $5,000 or more in compensation. That is the rule, but if you have anywhere close to that many employees, put down the article and just call me. Ok, you can finish but call me when you’re done!

Eligible Employees. All employees who received at least $5,000 in compensation from the employer during any two preceding calendar years — and who are expected to earn at least that much during the current year — must be allowed to participate in the plan.

Employee Contributions. Eligible employees, including self-employed owners, may defer up to $9,000 of compensation annually to a SIMPLE IRA on a pre-tax basis during 2004. Under the Economic Growth and Tax Relief Act of 2001, the contribution limits to SIMPLE plans continue to increase each year, until they reach $10,000 in the year 2005. Contribution limits will then be indexed in $500 increments each year thereafter. Catch-up contributions will also be available to employees age 50 or older in the year of deferral. The catch up limit is currently $1,500. The amount increases by $500 each year until 2006, after which it will increase with inflation.

Employer Contributions. Annually, the sponsoring employer may select from one of two plans: 1) Matching - 3% of the participants annual salary (can reduce to 1% in any two of five consecutive years) or, 2) Non-elective - 2% of all eligible employees’ annual salary. Under both plans, contributions are tax deductible.

Access. Contributions and investment earnings compound on a tax-deferred basis in the SIMPLE IRA. However, employees can access their accounts immediately if they need to, subject to federal income taxes and a possible early withdrawal penalty.

Funding through a Variable Annuity…
maybe a value added idea

Many employers and employees have found that funding their SIMPLE IRA through a variable annuity* (what these are a whole other article) is an effective way to gain access to a variety of professional fund managers. Under one annuity contract, a SIMPLE IRA owner can take advantage of a variety of sub-account options and can make transfers among the funds without being penalized.

The Right Choice?

For many small businesses, the cost-effective and easy-to-maintain SIMPLE IRA, with its generous contribution limits, is likely to be the best retirement plan choice. For more information go to http://www.irs.gov/retirement . No matter your talent, without a plan for success you have not planned to succeed. In the past we’ve discussed ideas, however I urge you, if you have committed to being a full time Artist, be sure to have a Business Plan. Further, you need to have a plan for a time when you are no longer working and make that an active part of your overall Business Plan.

To discuss financial management as part of your Business Plan or to just find out how a SIMPLE IRA may work for you and your Business, contact Keith Jackson, Financial Consultant at Janney Montgomery Scott LLC in Philadelphia at 215-665-6477 or kejackson@jmsonline.com.

*If an annuity is held under a qualified plan, there are no additional tax deferred provisions other than those provided by the plan itself.