Top 10 Things To Know About Self Employed Retirement
Being our own boss, setting your own schedule and calling all the shots are benefits of owning your own business and being self-employed. There are many challenges, however, associated with self-employment. The small list indicates that you are in charge of every aspect of your business; you have to find new customers, take care of marketing, deal with vendors and take care of your customers. You also have to deal with self-employed retirement planning since you will probably not be able to work your entire life. There are many retirement options for the self-employed though these may be somewhat more expensive on your own than through an employer.
1. Retirement plans for the self-employed include 401K retirement plans which are similar to what employers can offer, but 401Ks are more flexible when they are initiated solo. There are no required contributions, you decide when to contribute and how much, and you can contribute more to a solo 401K than you can through most employer sponsored plans.
2. Self-employed retirement accounts can also include individual retirement accounts or IRAs. These are often the best option for self-employed people. If your business is doing well and your income is more than $100,000 per year you may need to contribute to a traditional individual retirement account. This is a tax deferred account that lets you fund through pre-tax income and earn dividends and interest.
3. A Roth IRA is a different option if your income is under $100,000 and this IRA is highly flexible. A Roth retirement account provides many investment options to help you plan for self-employed retirement. Either a traditional IRA or a Roth IRA is the best IRA account for those who are self-employed. You need to research out the best return on your investment, align your earnings, and find the best brokerage house to handle your IRA.
4. One problem to consider when discussing self-employed retirement is retirement cash flow. You will be able to access an IRA account at 59 ½ without penalty if you invest in a traditional IRA. Bear in mind that a traditional IRA will require you to pay a penalty for early withdrawal.
5. A Roth IRA will allow you to withdraw funds without any penalties since these funds have already been taxed.
6. Both IRAs are tied to investments you choose and these can include money market funds, stocks, bonds or the commodities market. An experienced broker can lead you to the best places to invest your money that will give you the highest rates of returns.
7. Using an IRA to save for retirement can have significant tax benefits over putting your money in non-qualified savings retirement accounts. One benefit is not paying taxes until you withdraw the money.
8. You are able to deduct the amount of the contribution to an IRA from your income in the same year you made the contribution. This will reduce the amount of taxes you owe.
9. The average American retirement savings is somewhat pathetic. Self-employed retirement accounts are low and it has been researched and recorded that those who are 55 and older have only $80,000 in a 401K savings plan, may only have $60,000 on the average in a savings account, and do not save consistently year to year.
10. It is also statistically recorded that the new generation Y has no interest in contributing to 401K plans and believe that retirement is so far away it just doesn’t matter to save.