Savings Made Simple

| December 12, 2008

One classic New Year’s resolution is to save money regularly. Like most money-related vows, it gets broken into more pieces than a shattered windshield once the storms of unexpected maintenance and hundreds of other financial demands blow across your path.

Even some of the most disciplined owner-operators find that the best way to save is to have money pulled automatically from a checking account or, where available, from settlement checks. This works for truck expenses, retirement, children’s education or next year’s holiday gifts.

Dart Transit recently introduced such a program to encourage retirement savings. It’s an SEP (Simplified Employee Pension) version of an IRA (Individual Retirement Account), which is well-suited to the self-employed. Iron Financial Management and two other companies run the program, but Dart promotes it to its 2,100 owner-operators and arranges for settlement deductions based on pennies per mile or dollars per month, says Dart retention analyst Chuck Johanns in Eagan, Minn.

“I have been preaching SEP programs in orientation for three years, especially for fellows who get their truck paid off,” Johanns says. “They can only depreciate the truck for three years. If a guy holds on to the truck, which some have been doing the last four to five years, they’re losing on depreciation.”

An SEP IRA helps make up for that lost tax write-off. You don’t pay income tax on your savings or the earnings until you withdraw the funds in retirement, at which point you will be in a lower tax bracket, says Tim Lenon, a money manager with Iron Financial. “It grows much faster when it grows tax-free than in a bank account or anywhere else,” he says.

Dart’s program offers owner-operators five portfolios. They range from very conservative (safe, but low rate of return) to more risky (for high rollers).

You don’t need a carrier-sponsored program to take advantage of an SEP. Ask your accountant or banker for advice on setting one up. You can also arrange for monthly drafting from your checking account. That way, a year from now when you hear talk of New Year’s resolutions, you can take a little pride in those reduced quarterly tax bills and a nest egg worth several hundred dollars, if not several thousand, that’s growing all the time.


SEP BASICS

A Simplified Employee Pension is indeed simple. It is easy to set up, and its administrative costs are lower than some other retirement plans, such as Keogh plans. Here are some of the key points:

  • You can contribute up to $40,000 or 25 percent of your compensation each year.

  • You can begin to withdraw funds at age 59 1/2.

  • You can make an early withdrawal, but only for certain uses, such as buying a house or sending a child to college. Otherwise, an early withdrawal is subject to income taxes and a 10 percent penalty.

  • You have total ownership of the money, even if you are participating in a program made available through your carrier. The account remains yours if you change carriers.

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