One of the best things you can do for your future is to prepare for retirement. However, when you’re self-employed it’s a little more difficult, it seems, to find the means to set aside money for your retirement. Many people even assume that a retirement plan is something you can have only if you work for someone else, and it comes as one of your benefits.
Fortunately, this isn’t true. Anyone can open a tax-advantaged retirement plan. You just have to know what’s available to you as someone who is self-employed.
Tried and True: The IRA
One of the most common tax-advantaged retirement plans used by the self-employed is the Individual Retirement Account (IRA). You can open a traditional IRA or a Roth IRA if you have earned income; it doesn’t matter if you are working for someone else if you want this kind of retirement plan.
However, a “regular” IRA is somewhat limited when it comes to contributions. You have low yearly contribution limits to deal with, and that means that you might not be able to save as much as you want for retirement. For the self-employed, though, there is help. You can open a SIMPLE IRA or a SEP IRA as a business owner. This allows you to set more money aside — up to $50,000 a year. There are special rules, though, so you want to make sure you are careful as you set up and contribute to these types of accounts.
Consider a Solo 401(k)
If you are self-employed, but don’t have any employees (apart from your spouse), you can open a solo 401(k). The big advantage to the Solo 401(k) is that you can make bigger contributions. You can contribute from the employee side and the employer side. And, of course, a 401(k) comes with a higher contribution limit than what you see from an IRA.
You can also get a Solo 401(k) with a Roth option. This is a great thing for those who enjoy the Roth option. You pay taxes now with a Roth option, but you don’t have to pay taxes later when you withdraw. It’s a great deal if you think that you will owe more in taxes during retirement.
Consistently Contribute to a Retirement Plan
No matter what plan you decide to go with, though, the important thing is to contribute consistently. One of the basics of financial literacy is to set aside money for retirement. Even if you are among the growing ranks of the self-employed, this is an important part of securing financial freedom later in life. And you can contribute to a plan.
Make it a point to make regular contributions to your retirement plan if you want to be able to retire in comfort. Don’t forget to plan retirement contributions into your budget as you grow your business. You can save up quite a bit of tax-advantaged money while being self-employed if you take the time to learn about your retirement options and choose a retirement plan that works for you and your business.
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