Financial Consultants

If you start researching small business pension options, the alternatives quickly overwhelm. Banks, financial planners, insurance agents and many others clamor for your attention and offer up what they tout as the obvious best option.

Fortunately, and perhaps surprisingly, you can create easy pension options for your small business. These easy options are usually available regardless of whether you operate as a sole proprietorship, partnership, limited liability company or corporation. And for many small business owners, the easy options also often represent the best value.

Easy Option #1: A Traditional Individual Retirement Account

To start, don’t overlook the traditional individual retirement account. No matter what your income, as long as neither you nor your spouse are covered by some other qualified retirement plan, you can setup and deduct contributions to a traditional individual retirement account. Typically, neither the business nor the individual pay fees or pay only modest fees to have an IRA in place.

Regular annual contributions to a traditional IRA grow large over time. A $5,000 annual contribution (the standard amount allowed in 2008) made over 35 years grows to more than $550,000 after adjusting for inflation. (I’m assuming you earn an after-inflation 6% rate of return in this scenario and the others that follow.)

That $550,000 IRA balance is actually a pretty good ending account balance–enough for many business owners’ retirements if they’ve also paid off a mortgage and qualified for social security. And remember that married couples can often double the ending value amount by doubling the annual contributions.

In summary, then, a traditional IRA shouldn’t be overlooked–especially if you and any employees want to save only a few thousand dollars a year.

Easy Option #2: A Simple-IRA

If you or employees want to save more money than is possible with a traditional IRA, you can often for free or almost free set up a Simple-IRA plan for the business.

Essentially, a Simple-IRA works like a “lite” version of a 401(k). With a Simple-IRA, employees and the business owner can contribute up to $10,500 ($13,000 if aged 50 or older) of their earned income to the Simple-IRA account. The employer typically matches the contributions, too, with a standard three-percent-of-salary contribution.

If someone making $50,000 contributes the maximum $10,500 amount to the Simple-IRA and the employer contributes another $1,500 (three percent of the $50,000), the employee accumulates roughly $1.2 million in savings after 35 years. Again, I’ve adjusted for inflation and used a 6% after-inflation return.

Easy Option #3: A SEP-IRA

One other inexpensive yet powerful small business pension plan option deserves mention.

If you’re a one-person business or employees usually don’t stay around for very long, you may want to consider the SEP-IRA option. With a SEP-IRA, you can contribute up to 20% of your business profits in the case of a sole proprietorship or partnership or up to 25% of your wages in the case of a corporation, including an S corporation.

To give you an example of this, assume your sole proprietorship makes $100,000 each year, in this case, you can contribute $20,000 (20% of the $100,000) to a SEP-IRA account. Or, as another example, assume your S corporation pays you $80,000 in wages. In this case, you can contribute $20,000 (25% of the $80,000) to a SEP-IRA account.

Over 35 years, after adjusting for inflation, a $20,000 a year SEP-IRA contribution grows to roughly $2.2 million dollars. Here again, by the way, I’ve used a 6% annual investment return in my calculations.

Like the traditional IRA and Simple-IRA option, a SEP-IRA usually costs the business owner nothing or next to nothing. You won’t get burdened with expensive set up fees or annual administration costs.

However, while you can make large annual contributions to SEP-IRA accounts (up to roughly $46,000), the plans don’t work for every small business. And here’s why: You must cover all employees who have been employed by you for more than three years and who are over the age of 21.

SEP-IRAs, then, are probably most attractive to one-person businesses-such as consultants and tradespeople-that don’t need to worry ever about making the SEP-IRA contribution for employees.

Moving Forward

I’ve been pretty birds-eye in my discussions in this article, so you may have more questions. You should be able get answers about all of these retirement savings from just about any mutual fund company, bank or stock broker. Note, too, that the contribution amounts allowed regularly get adjusted for inflation.

You can obtain a Panama Bank Account without having to come to Panama!

Panama Banks – Panama banks do open bank accounts for foreigners. Panama asides from being the number one retirement haven in the world is also the world’s foremost tax haven. Offshore bank accounts in Panama are the most coveted in the world today. All the banks we use have online banking including the ability to send international wire transfers, check balances, history and other information. You can get an ATM Debit card that is good worldwide for ATM withdrawals and it works for some Point of Sale Purchases. We work with several different banks and savings and loans in Panama. We do not discuss names of banks until after a person becomes a paid client, and all the required documents have been provided, please do not ask. Same applies to sending out bank forms, signature cards, etc. We have a list of banks that we have a working relationship with where we are able to have accounts opened without the need for the parties to come to Panama. Some of these banks are large multi-national conglomerates with assets in the 100 Billion Dollar Range and others are small Panama only Banks that offers a more personal touch and banks with everything in between. We have never had a customer leave us because we could not get them an account with a bank or savings and loan they felt was not suitable. We can normally have an account opened within 5 working days of the receipt of our fee and the required documents, some times faster.

The Process – Making a trip to Panama is not necessary. Panama Banks never accept cash to open an account. Some customers wish to come to Panama to meet the bank, etc. This is fine but we will NOT introduce a person to any bank until after they are a paid up client and we have done our due diligence having their reference letters, passport copy etc. The banks rely on the law firm to do the required due diligence in the area of know your customer which is the same as required by the banks. The banks in Panama have no shortage of customers since a Panama Bank Account is the most coveted in the world right now. The banks do not wish to have potential customers contacting them directly before the law firm has completed their due diligence. The banks are not fond of foreigners calling on the phone about opening up an account. If you are coming to Panama which again is not necessary, we suggest you do the formation of the corporation or foundation before you come and we can get the bank account approved by the new account committee before you arrive so basically you just meet the bank manager, sign the forms and signature cards and then are free to depart and your account should be functional the next day. We can assist with corporate rates on a hotel; get you an English speaking driver with a car, etc. You can have a checking account or a savings account. Time locked deposits for higher interest rates are available. Minimum deposits tend to run between $500 and $2000. Some banks will provide an ATM card with the account immediately. Some banks will issue direct from the bank a Visa card that is a secured debit card. It is good for ATM machines, internet purchases etc. The bank will generally require a security deposit which goes into a special interest bearing account. If your Visa card had a $10,000 credit line they would probably request a security deposit of $12,500. At the end of the billing cycle the money to pay your card balance down to zero would be deducted from your regular account. If a need arose you could ask the bank to clear the balance before the end of the billing cycle freeing up your credit for travel. There is the option of a third party ATM card that has numbers only, no account name at all on the card. There is also the option of having a third party MasterCard or Visa debit card (not credit card) for an extra fee. The Visa or MasterCard debit card also can function as an ATM card.

Documents Required – A notarized copy of the picture page of the Passport, letter of reference from a recognized bank, and a letter of reference from an attorney, accountant or company you do business with on their letterhead. Any bank in the modern world using the international wire system will require at least this much documentation from a foreigner opening up a bank account in their jurisdiction.

Stock Trading – The savings account can also be directly tied to a stock trading account. This allows one to trade online around the world. There is a $50,000 minimum to open such an account. The clearing agent is top drawer. We can also arrange for you to have a separate brokerage account in Panama with minimums as low as $20,000. USA passport holders can not have a personal stock trading account corporate or foundation only.

Type of Account – Offshore bank accounts in Panama can be opened for a corporation or a foundation. Accounts can be opened for personal, corporate or for a foundation. USA passport holders can not open personal bank accounts unless they actually reside in Panama and can document this. We always suggest the offshore bank account in Panama be opened using a Panama corporate structure. This way when wires are sent or received it can not be seen that you are the person(s) behind the corporation. When you use an anonymous Panama Bearer Share Company the ownership of the company is not recorded in any registry or public record database so no snooping entity can determine who is actually receiving the funds, and this makes for very private personal banking. Recently there was a scandal in the media where it came out that the USA was monitoring SWIFT wire transactions for some years. Monitoring a wire transaction to an anonymous corporation is fairly meaningless since nothing is known about the ownership of the corporation. If the sending entity was also an anonymous corporation that would be a good working definition of a dead end both ways. We always advise against personal offshore bank accounts in Panama for these reasons in addition to the fact that a corporate or foundation bank account greatly enhances asset protection but will work on personal accounts at the client’s request. We can not get personal bank accounts for USA residents/citizens. As an additional option one can open an offshore Panama bank account using a Panama Foundation which is also anonymous.

Bank Account Signatory Verification You or your designated signatory(s) will be the only person(s) with access to your offshore Panama bank account. What we do is have the bank opened up as a zero balance account; no money is in the account. Before you load the account with any funds we will show you how to securely contact the bank by phone and verify that no one else can sign on the account or otherwise access the bank account. After the account is funded online banking information will then be emailed to you directly and you reset the password securely online immediately upon receipt. ATM card will be sent by courier directly to you.

Number of Bank Accounts – You can open up more than one Panama offshore bank account in different banks using different corporations or same corporation or a corporation and a foundation. Sending funds from one corporation or foundation to another for payroll, purchases or other reasons can easily be accomplished using the ACH system in Panama which 30 large banks use. This is not a wire transfer and the data is covered by Panama Bank Secrecy laws and only entities covered by these laws have the data. It takes one to two days for the ACH transfer to be completed and the cost is about $1.00 per transaction.

Panama Bank Secrecy – Panama has strict banking secrecy laws better than any jurisdiction we know of. Panama has no tax treaty with any other country. This is not the case with tax havens like Switzerland, Belize etc. who do get into tax treaties with numerous countries. Tax treaties are the legal basis for government fishing expeditions. Fishing expeditions do not happen in Panama. If a bank employee or officer violates the bank secrecy
laws they can go to prison, get fined and of course you can sue the daylights out of the offending bank. The bank secrecy laws are statutory in Panama. A question that frequently comes up is if a Panama Bank that is operating under the name of a chain of large international banks is able to maintain true Panama Bank Secrecy. Let us say the Bank is called Bank Two (no such bank in Panama) and Bank Two operates in Europe and North America with 68 bank branches in different countries. The Bank Two banks in other countries can not go into their computers and see account holder information about Panama Bank Accounts. This would violate Panama Bank Secrecy, expose the bank officers to criminal prosecution and enable you to sue the bank and its responsible parties for millions of dollars of damages. In spite of this some people prefer a bank that operates only inside of Panama and we can accommodate this sort of request.

For more information, please visit:

http://www.panamalaw.org

email at: panamalegal@hush.com