Employee Benefits
Self-Employed Retirement Plans: Which Is Right for You?
by Chris Parry (Write for us!)
(Click on the links within the article to get definition of that word)
Being self-employed certainly has its benefits. From being able to
throw your alarm clock out the window
to having the opportunity to take a three day weekend whenever you like, it is easily the best gig out there.
However, when it comes to retirement planning, being self-employed has its drawbacks as well. If you had chosen
to work within a larger corporation, the chances are quite good that your company might have set up and contributed
to a retirement account for you, thereby absolving you of the responsibility of handling the situation yourself.
But since you are on your own choosing the right retirement plan early is essential to your financial state of
being later in life.
What Are My Options?
There are several kinds of retirement plans available for the self-employed. A Simplified Employee Pension,
also known as an SEP, is a fairly simple, basic retirement plan. A Keogh is a bit more
complicated, but the
benefits can outweigh the related complications. Individual 401K plans offer some of the best self-employment
benefits on the market. Roth IRA plans are an excellent secondary retirement savings plan. Spousal deductible
IRAs work well if your spouse has an established retirement plan at work.
Which Option Is Right For Me?
SEP Benefits: If you choose to go with an SEP plan, you are looking at a simple retirement account that accepts
contributions of up to $44,000 per year. In general, you can contribute twenty percent of your self-employment
earnings to this type of plan without paying any taxes on the money. One of the best benefits of a plan like this
one is that they are really easy to set up. They have no real ongoing costs, unlike many of the other self-employment
plans,, and they allow some fairly serious contributions each year, helping you prepare for retirement at a much
earlier age.
Keogh Plans: As with an SEP plan, you can contribute twenty percent of your earnings to a Keogh
plan each year.
The goal of this kind of plan is to offer you your desired annual amount of retirement funds, and your level of
contribution reflects that each year. As a result, this might be the right option for you if you are a bit behind
with your retirement planning. The primary problem with these plans, though, is that they are difficult to set
up. In most cases, you need a financial firm or advisor to help you with the details and the IRS will want a
detailed report about your plan on a yearly basis.
Individual 401K Plans: The maximum amount that you can contribute, tax-free, per year to a solo 401K plan is
$44,000. If, however, you are over the age of 50, that number goes up by five thousand dollars. If you want
to be able to stash quite a bit in you retirement plan without paying taxes on it, this is probably the
best way to go, as with the high contribution limits, you could be ready for retirement sooner than you think.
Roth IRA Plans: A Roth IRA cannot be your primary retirement plan. However, if you have a good handle on your
current retirement savings plan, and you want to be able to put away additional dollars for your golden years
without paying the extra taxes, you can add four thousand dollars to a Roth
IRA each year. Eventually, you can
withdraw all of the money in this IRA without ever paying any money in taxes on the funds.
Spousal Deductible IRAs: If your spouse works for a company that has a strong retirement plan, you can contribute
up to four thousand dollars every year to that plan. This is a good path to take, but in the end, the Roth IRA
allows you to pay fewer tax dollars on your retirement earnings.
 Print Article
 Cite this Article
|
How to use this tool 
How to use this tool 
