Several of my clients require that I carry liability insurance, but I don't understand exactly what they want. What kind of liability insurance do I need?
Basically your clients want you to have adequate insurance in case they are damaged due to negligence by you or one of your employees or agents.
General liability, the most common type of coverage, covers you in case of physical injuries or damages that result from some thing you do. For instance, if you dropped a client's $3,000 computer when moving it, your general liability coverage would pay to replace the computer.
Errors and omissions (E&O), or professional liability insurance, is another type of liability coverage common for service businesses such as accountants, consultants and engineers. E&O covers casualties other than those that result in physical injury or damage. For example, a computer consultant loads a program into a client's computer. The program contains a virus that wipes out all the data on the client's hard drive. The client might have to spend thousands of dollars to recon struct the lost data. In this case, professional liability insurance should protect the consultant.
Do a little basic research to find the right liability insurance for your business. Start by talking with other people in businesses similar to yours. Find out what kind of coverage they carry. Also talk with several agents who can help you understand the types of coverage available and how much coverage will protect you while satisfying your clients' needs.
I participated in a 401(k) before I was downsized. Now I have to take the money out. I want to continue setting money aside for retirement and have heard about Keogh and SEP plans. How do I set one up and put my 401(k) money into it?
There are two components to a retirement plan. The first is the type of plan. The second component is where you invest, such as mutual funds, stocks and bonds, etc.
The most common types of plans are IRAs, Keoghs, SEPs and the SIMPLE, a new plan for 1997. Just about anyone with earned income can contribute up to $2,000 annually ($4,000 includ ing a spousal contribution) into a tax-deferred IRA. In a SEP, you can contribute up to 15 percent of your earnings and a substantially higher maximum amount.
Specific IRS rules determine who qualifies to participate in the different plans as well as the amount that can be contributed annually.
If the maximum you can afford to contribute annually is $2,000, an IRA is probably adequate. If you can contribute more than $2,000, consider a Keogh, SEP or SIMPLE. A SEP has been the plan of choice over the past few years because a Keogh requires you to fill out more paperwork and file an annual IRS return. A SEP only requires a short IRS form kept in your files and no annual returns.
Deciding where to invest your money is even more important than choosing the type of plan to use because your investment will determine how much money you've acquired at retirement. If you're satisfied with your 401(k) return, you might be able to leave it where it is now. Contact the plan administrator and find out if your 401(k) can be converted to a personal retirement account. If you're dissatisfied with the 401(k) investments or you can't leave it where it is, you'll need to decide where to reinvest. Be sure the transfer of the 401(k) money takes place directly between the old and new accounts. Don't have a check made out to you or taxes will be withheld and you'll have to wait until the end of the year to get those taxes credited back to your retirement account.
Setting up a retirement plan is not for the neophyte. Unless you
possess investing savvy, consult a tax planner, financial planner or
investment broker to help you make decisions.
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