Law in the Market: Startups and IRAs


Most people who start new businesses in New Hampshire are quite young when they do it – around their late 20s to early 40s. And they need to know not only their businesses, but at least the basics of IRAs, qualified plans, ESAs, and HSAs, and they need to know that just as the younger years are often the best time to start a new business, they are also the best time to start these plans. The younger the better.

Here are the basics you need to know about IRAs, qualified plans, ESAs, and HSAs:

— IRA stands for “Individual Retirement Account”. There are two main types of traditional IRAs: SEP-IRAs and SIMPLE IRAs. SEP-IRAs are primarily for people without employees. SIMPLE IRAs are for people who are employers or employees of small businesses.

— Both types of traditional IRAs offer a triad of important federal tax benefits: first, contributions to IRA trust accounts are deductible from participants’ taxable income; second, the appreciation of funds in these accounts is not subject to federal tax; third, when participants withdraw funds from their IRAs, they typically do so after retirement, when their federal income tax rate is much lower than before retirement.

— There are also tax-advantaged retirement plans called “qualified plans” — for example, 401(k) plans. However, establishing and maintaining these plans can be complex and expensive, so they are generally not suitable for small businesses.

— IRAs and qualified plans can be either “traditional” plans – that is, the type described above; or they may be “Roth” plans, ie plans whose contributions are not deductible but whose withdrawals are not taxable.

— Two types of plans that have some federal tax similarities to IRAs and qualified plans are education savings accounts (“ESAs”) and health savings accounts (“HSAs”). ESAs can provide significant federal income tax savings to parents who pay them to educate their children. HSAs can provide significant savings to people who pay into them to cover individual and family health expenses.

Federal laws and regulations covering all of the above arrangements are complex. For instance:

— The contribution limits for these plans vary considerably from plan to plan.

— Special rules govern when plan holders can make withdrawals from these plans and when they must make withdrawals.

— Individuals must consider many factors when deciding whether to participate in traditional plans or Roth plans.

Thus, before individuals establish or participate in any of these plans, they should consult accountants, lawyers or financial advisors who have comprehensive and practical expertise on them.

I myself am not an expert on IRAs, qualified plans, ESAs or HSAs; I’m just a generalist on them. But I know enough to know that I owe it to my clients to refer them to experts when they start their business or as soon as possible thereafter.

And in future columns, being a generalist, I’ll do my best to give more information about each type of plan insofar as I think it may be useful for readers.

John Cunningham is an attorney licensed to practice law in New Hampshire and Massachusetts. He is legal counsel for the law firm McLane Middleton, PA. Contact him at 856-7172 or [email protected] His website is To access all of his Law in the Marketplace columns, visit

Law in the Marketplace is a legal advice section. It airs weekly in the Sunday Business section. The author is a lawyer at Concord and is not a staff member of the Monitor.


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