If you are self employed you are probably aware of the many expenses that come with owning your own business. In addition to employment taxes and health insurance, self-employed individuals find a viable alternative to the standard retirement options they have working for a larger corporation.
Fortunately, people that are self-employed do tend to have a few more options when it comes to retirement planning. These self-employed retirement plans offer more benefits than the average person has when it comes to financing their retirement.
Simplified Employee Pensions – This is one of the most common self-employed retirement plans and one of the oldest as well. This type of retirement plan is designed especially for small businesses, and it’s a lot easier than dealing with a 401k. To get a Simplified Employee Pension plan going, all you have to do is file some paperwork with your bank.
If you own a business and decide to go with this type of retirement plan, you can contribute up to 20% of your income to the account each year, plus if you decide to incorporate your business, you can increase your contribution to 25% of your income. Your contribution is capped at $49,000, but this is a good amount to be able to put away each year for retirement. Like most retirement plans, the money is tax deferred unless you take money out of the account.
The Solo 401k – This is a plan that is much like the traditional 401k with the same limits; but you can also contribute up to 20% of your self-employed income, along with the $15,000 a year.
The Simple IRA – This account is easy to setup, but limits contributions to $11,500 each year. Although the contribution limits are low, this is actually the better plan for those that are self-employed, but not earning a lot. The reason for this is that you can actually contribute 100% of your income if you choose.
As with most retirement plans, you’ll want to use a combination of financial planning strategies to ensure that you have all of your bases covered. But whatever strategy you choose, start now. The most important thing is that you begin planning for retirement as soon as possible.