How Can I Retire If I'm Self-employed?
It’s been nagging me that I don’t have a retirement plan in place. I mean, I had a couple of 401K plans at my previous employers, but since I only had a few hundred dollars in those, I cashed them in to help cover costs when I was between jobs (i.e. having kids).
Now that I’m self-employed, I realize that, like Uncle Ben told Peter Parker, aka, Spiderman, with great power comes great responsibility. With no retirement fund in place, I don’t feel very responsible. How can I retire if I’m self-employed? I didn’t have a clue.
So, I started digging around, and found some great suggestions for retirement plans for self-employed people like me, courtesy of Forbes magazine. Take a look and see for yourself if one of these would be good for you.
If you work for yourself, this is a good choice because you can set aside up to 25% of your net self-employment earnings, up to a certain amount. The simplified employee pension is built up with pretax dollars, so you can reduce your tax liability by setting aside a little extra at tax time to reduce the taxes you owe.
It’s not a great choice if you have employees, though, since you have to also make contributions to their SEP-IRA’s as well.
This one operates a bit like a traditional 401K, allowing you to borrow against the account if you absolutely need to, but it also allows you to contribute as both an employer and an employee, allowing you to set aside more pre-tax dollars.
This is more of a savings incentive plan for self-employed people with a few employees. You match their contributions to their own IRA, but can deduct the contributions from your own liability. If you need to pull money out, there are hefty fees and fines, so this is more of a long-term saving plan rather than a last minute effort to secure a comfortable retirement.
Baffled by all the terminology related to these plans, or still just not sure which is right for you? I would recommend speaking to a customer service agent at a reputable financial firm. Vanguard, T. Rowe Price and Fidelity are all very good at explaining the different options available to self-employed people, and any one of them will likely steer you to the best choice for your individual needs.
Have you got your retirement plan in place? How are you planning to afford your ‘golden years’? Please feel free to share in the comments section below!