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Retirement savings, health insurance
and tax savings
Dear Small Biz Adviser:
My husband has a small business and a child. He doesn't have any
kind of retirement plan, and I have been urging him to follow up
on an IRA plan. He's interested, but isn't a financial person at
all; he lives from paycheck to paycheck. I'm just now taking over
a mess of finances for him, and I'm trying to get the ball on the
right track.
With money being very tight and our tax bills outrageous,
should we start with an education IRA? In addition to his child,
we have a 4-year-old son. Also, I have heard of health insurance
for small businesses and rates that are affordable, but I haven't
found a plan under $500. I'm currently covered under an insurance
plan at my job, at a cost of $220 for my son and me. Do you know
where I can find some information?
Thank you a bunch,
Home Accountant
Dear Home Accountant:
Your questions are on specific ways to solve your retirement-savings
and health-care-coverage needs, and we'll certainly look at your
options here. But I'd also like to suggest a variety of strategies
you might find useful in dealing with the financial needs of your
family and your husband's small business.
Overall, I get a strong feeling that you and your
husband have never addressed your combined finances as one unit
of income and expenses. I don't know what agreements, stated and
otherwise, you reached at the time of marriage, but your inquiry
suggests an intention to consolidate matters for the benefits of
the total family, both parents and the two kids, so we'll look at
that, too.
IRA options
First, let's look at retirement accounts. The tax laws provide for
several different plans, for both individuals and small businesses,
that can help cut tax bills. Individual taxpayer options include
the traditional and Roth accounts. Business owners can look into
a Simplified Employee Pension (SEP) or a SIMPLE IRA.
For details on each of these accounts, review my recent
column on IRAs
for the self-employed. In addition, Bankrate expands on the
definitions, advantages and disadvantages of the various IRA options
in the article, Individual
Retirement Accounts: something for everyone.
Since you have children to consider, you are wise
to explore the tax-deductible incentives of an education (Coverdell)
IRA. This savings vehicle gets even better in 2002, with the amount
that can be contributed going to $2,000 and the range of expenses
for which it can be used expanding. Educational-IRA.com
provides comprehensive information on this plan. However, I highly
recommend that you consider this investment in the overall scheme
of your family's financial situation, both short-term money needs
and long-term savings plans.
Health care and the small company
As you well know, for an entrepreneur with a family, getting
health insurance coverage can be difficult. It is a continual
battle to find an affordable plan that addresses coverage options,
premiums, deductibles and availability of local health care providers
who accept the plans.
There are so many Internet sites offering direction
or a sales pitch. Bankrate's story on health
insurance options for the self-employed provides several suggestions
on how to fill gaps in coverage. You also should check out Bankrate.com's
insurance
channel, and a quick search of the Internet turned up the following
sites that offer information on entrepreneurial health care coverage:
- InsuranceQuotes.com
is an online portal that provides a review of plans, companies,
quotes, FAQs and information about medical savings accounts (an
increasingly popular option).
- The
National Federation of Independent Business has long championed
the causes of small business before Congress. Membership in this
nonprofit allows access to a number of health plans at rates advertised
as discounted.
- U.S.
Insurance Directory is not exactly a low-keyed site. Pop-under
ads abound, but it offers more than 650 Web site listings alphabetized
by state.
Of course, many chambers of commerce offer group rates
for health, dental and optical plans. Check with your local chamber
office.
Family finances
Finally, I must broach the issue of your overall family finances.
As I noted, I am not aware of your marital arrangement as it relates
to money management, but why not consider including your husband
and his son in the health plan at your job? It may prove more economical
to the total household. It is certainly a common arrangement in
many homes where one parent is employed and the other is self-employed.
That's what we do in our household. The cost savings simply cannot
be beat.
In conclusion, if you are still confused or uncertain,
it may be best to seek the advice of a financial consultant or an
agency that specializes in these family-finance issues. An excellent
example is the locator
service of the National Foundation for Credit Counseling. This
is not to suggest you are in financial trouble now, but they may
provide an independent, outside solution you just may need at this
time.
Regardless of the decision, I wish the best to all
four of you.
-- Posted: Jan. 29, 2002
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