It is important you save for retirement if you want to have enough money to enjoy a comfortable standard of living when you are retired or reduce the amount of time you spend at work. Thus, retirement savings is a priority.
You can also save for retirement even if you are self-employed. It is important you save for retirement if you run your own business. Granted, you don’t have a 401k contribution plan or a company-sponsored pension plan to depend on.
So, are there retirement plans suitable for small business owners or individuals who are self-employed? Definitely, there are several retirement plans that can help self-employed individuals save for retirement with guidance.
This article contains a few retirement plans that are suitable for the self-employed or small business owners. Following them with guidance can help you save for retirement.
This retirement plan is suitable for all, not just for individuals who are self-employed. You should consider a Roth IRA when you are searching for a retirement for the first time or you want to resume savings after creating a business.
Roth IRA has a few benefits. It is very flexible, low-cost, and permits you to increase your money without tax payment. This is as long as you don’t compromise on some specific rules.
You can make contributions up to 4,000 USD, and you can withdraw at any given time without penalty or tax after age 59. You may be penalized or taxed if you withdraw before you turn age 59. Also, there can be a penalty if you fail to meet certain conditions associated with the plan.
This retirement plan is suitable for individuals who want to save for retirement, but they have maxed out their Roth IRA. You can save about 25% of your compensation with SEP IRA.
That changes to 20% of your income if you are self-employed for a max amount of 44,000 USD every year. The maintenance fee for this plan is low. In addition, their contributions are tax-deductible.
Employees can also make contributions under a company plan, but they are not permitted to make contributions for a personal SEP IRA. At any rate, there are employees under you. As such, you are searching for a cheap way for saving for retirement for yourself as well as your employees. Then, this plan is a suitable choice.
This is a simple plan that allows individuals to save for retirement by offering them the benefits of a 401k. However, you won’t have as many IRS reporting requirements.
Individuals can make contributions up to 10,000 USD to a simple IRA with a 3% employer match. Also, Simple IRAs benefit from low annual fees and contributions are tax-deductible.
This plan welcomes employee’s contribution. Although, it is compulsory to have a company match. The Simple IRA plan is better than other retirement plans for individuals who make less money or are self-employed. Moreover, it allows them to save more for retirement.
The Solo 401k plan is suitable for small businesses with no staff. This plan allows one to save more money with less reporting requirement. It is also low cost when compared to the traditional 401k. Anyhow, the Solo 401k is quite similar to SEP IRA with max contributions of 44,000 USD.
However, the Solo 401k differs from a SEP IRA. This is because participants can contribute about 100% of the first 15,000 USD of self-employment income or compensation. There is also an additional compensation amount up to 25%.
This information is vital. You can save more money for retirement compared to a SEP IRA plan if your compensation per year is below 220,000 USD. However, this plan is not suitable for small businesses with employees.
There is no one perfect plan for self-employed individuals or small business owners to save for retirement. Selecting the ideal retirement plan is dependent on some factors such as:
- Whether or not you have employees
- The amount to contribute per year
- Duration of the plan, and so on.
There are many brokerage companies, mutual fund companies, or fee only financial planners. These are sources where you can find more information that will enable you to save for retirement.