Getting the best retirement plan for self employed workers can help you set and achieve your retirement goals.
As a self-employed worker, you have the responsibility of planning your retirement, unlike most employees that enjoy retirement plans as one of their work benefits. Are you looking for the best retirement plans? If yes, this article has got you covered.
Best Retirement Plan Self Employed
A good retirement plan can help entrepreneurs and self-employed workers save toward their retirement. Although being self-employed gives you the freedom to work when and how you want, it requires being responsible.
This includes planning for your retirement as early as you can. Most companies enroll new employees in 401k plans and with this, they don’t have to worry much about retirement. This case is not so for the self-employed as there is no automatic enrollment for them. Luckily, there are some important Self employee Retirement Plans which you will discover as you read on.
Retirement Plans for Self Employed
Most times, it’s hard to save as an entrepreneur. This is due to so many factors such as lack of steady income, debts, the cost of running your business, and lots more. But with any of the best self-employed retirement plans, you are sure of saving toward your retirement goals no matter how hard it may look.
There are some retirement plans you can get as a self-employed. When choosing any of these plans, ensure you choose one that matches how much you earn. Discussed below, are the best retirement plans for self-employed.
Individual Retirement Account
The Individual Retirement Account is also known as IRA. This is one of the best retirement plans for self-employed. This is because you can use it to save for retirement and your earnings also grow tax-free. This account helps you to make investments that will help you secure your financial security.
Are you a self-employed looking for how to secure your future financially? If yes, you should open an IRA account. You can open this account with a bank, a life insurance company, a mutual fund, a stock broker or any other financial institution.
There are different types of IRAs that apply to self-employed individuals. Want to learn more about this? Read on!
The Traditional Individual Retirement Account (IRA) is an ideal option for you when you want to save for your retirement. With this account, you can make contributions without taxes. However, taxes are charged when you want to withdraw from the account.
When you contribute towards this account, your contributions also grow tax-deferred. However, when you withdraw money from your account during retirement, your earnings will e taxed at the normal income tax rate.
The second type of IRA account for the self-employed is the Roth IRA. This IRA account is quite different from the Traditional IRA. When you open this account, you can deposit tax-deducted money into the account.
Upon retirement, you will not be required to pay any further taxes when you withdraw the money. The only way you can fund your IRA account is through cash, checks, or money order. You can’t make deposits in form of securities and property.
Are you self-employed? If yes, you should check out the Solo 401(K) plan. This is one of the best retirement plans for self-employed. A solo 401(K) plan is a unique 401(K) designed for individuals who are self-employed with no staff.
If you are a business owner with employees, you can’t open this account. Although the plan can be used to cover you and your spouse. Apart from having no employees, there are other requirements you must meet before you can open an account.
Your business should produce income and should be verified through your tax records. This retirement plan is the best option for freelancers, one-person business operators, and independent contractors.
Simplified Employee Pension (SEP IRA)
A Simplified Employee Pension IRA is a retirement plan for business owners with employees. It is a unique version of the Traditional IRA. This retirement plan is opposed to the 401(K) plan which does not allow for employees.
If you are self-employed with staff and want to get a plan for both you and your staff, this may be the best option. However, only you as an employer can contribute tax-deducted money into this account.
This offers tax benefits and higher contribution limits compared to the traditional IRA. The contribution limit on this retirement plan depends on your annual income. This also affects the amount you save per year.
Savings Incentive Match Plan for Employees (SIMPLE IRA)
Another retirement plan for the unemployed is the SIMPLE IRA. This plan is very similar to the SEP IRA but contribution limits are usually lower. If you are a business owner with 100 or fewer staff, this is a good retirement plan option for you.
This plan can be set up by employers and this includes self-employed persons. One advantage of this plan is that both you and your employee can contribute toward the plan. This plan is easy to set up and cost-effective.
The lower limits on contribution are also an advantage. Your employees are also allowed to make contributions toward the account. These are the Best Retirement Plan Self Employed.
How to Choose Retirement Plan
Having known the self-employed retirement plans, you may be confused about which one to pick. Are you confused about which retirement plan to choose? If yes, this section of the article will help you out. There are some factors you should consider when choosing a retirement plan.
Firstly, you have to consider how much time you have until retirement. Secondly, you need to decide on what you will spend on after retirement. For instance, when you plan on buying a home or funding your child’s education, you need to save more.
If your business does not have a high income, you may consider the IRA plan. This is because the contributions are tax deductible. If you want both you and your employee to contribute to the account, you should go for the SIMPLE IRA.
How Much Should I Save for Retirement?
Gone are the days when pensions were enough to take care of individuals after they retire. It’s very important to save for retirement and you should commit at least 15% of your annual income towards it. If you start saving during your 20s and continue consistently, you will have no issues fending for yourself after retirement.