The Golden Years: Retirement Planning for the VC

The Golden Years: Retirement Planning for the VC Owner

With a traditional employee business model, you are often provided with a retirement package-which may or may not be sufficient for you to actually retire in this lifetime. As a business owner working for yourself, you hold the retirement reins. By investing in a retirement fund, you can set your own standards of retirement living, and even determine at what age you want to retire-whether it's at 50 or 90 (hey, if you love your career, you're not going to want to stop working!). There are a number of retirement plan options for the virtual entrepreneur to choose from:
* SEP-IRA: The Simplified Employee Pension-Individual Retirement Account is a versatile retirement program that allows you to contribute up to 15 percent of your earnings to an interest-bearing account. One benefit of the SEP-IRA for virtual business owners is that you can adjust your contribution amount, so if you earn less in one year you can put less into the plan. Starting a SEP-IRA is a simple matter of filling out one form (Form 5305-SEP) and filing it with the IRS.
* Keogh Profit Sharing: The Keogh plan is similar to the SEP-IRA. It is a bit more complicated to set up, but allows you to contribute a higher percentage of your income: up to 25 percent. Keogh profit sharing is widely used among high-earning professions such as law firms and medical professions. However, if you can afford to put away 25 percent of your income, you can retire comfortably wealthy.
* Roth IRA: The Roth IRA is an excellent retirement plan. While most contributions to retirement funds are made before income tax is levied, you contribute to a Roth IRA post-tax. This means at retirement time, the entire amount in your Roth IRA, including interest, can be withdrawn tax-free. You can contribute up to $3,000 annually to a Roth IRA, and there is no age limit on the account-so if you choose a late retirement, you can continue to fund your Roth IRA.

If you want to retire "over the rainbow", you'll need to start work on your pot of gold today!

Micro-Management: Legal Handling of Your Scattered Employees

You may not have any employees at all. However, from time to time you may find it necessary to bring in some extra help. When you do, you have two choices: hire an employee, or enlist a contractor. Both of these methods have different tax concerns-and because they are far less complicated for contractual help, most virtual corporations choose to outsource the services they can't provide themselves.

Employee Tax Issues: Any business owner knows an employee is an investment. If you're running a virtual corporation, in the beginning stages it's almost always better to outsource extra work. However, as you grow you may want to consider hiring someone who will work with you on a long-term basis and know your company almost as well as you.

In regards to taxes, as an employer you must pay Social Security, Medicare and unemployment tax for any permanent employee. One concern related to the virtual office is the physical location of your employee. You may choose to hire a telecommuter-someone else who works from home. If your employee(s) live in another state, you must file a W-2 (standard income tax form for employees) with that state. This costs an additional fee, but usually no more than $10 annually.