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Self Employment Earnings Do Not Affect Current Connection
(Posted October 9, 2001)
Question 138: I'm 47 with 20 years of railroad work. I recently turned a hobby into a profitable business. I have a partner; the business is not incorporated at this point. I may consider leaving the railroad to pursue my business on a full-time basis in about two years. How can I arrange things so I won't break my current connection with the railroad industry? If the business is incorporated in the future, or becomes as LLC, will that destroy my current connection?
Answer: As long as the business is not incorporated, there should be no effect on your current connection status regardless of your earnings.
But incorporation could destroy your current connection in a short time if the financial arrangements are not carefully structured to avoid that. Remember, only salary and earnings are counted against your current connection status, not the profit or return on your investment. You need a skillful attorney and accountant to keep your "salary" to a token amount-- take your compensation in dividends.
Be sure to check with the Railroad Retirement Board when you are ready to incorporate to find out what is the upper limit in annual earnings that will not break a current connection. You will want to set your salary below that figure.
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