If you are self-employed, you know that there is a lot to think about on a daily basis regarding your finances. One thing that can sometimes get pushed to the wayside or disregarded in the financial planning process for the self-employed is retirement savings. Planning for retirement is just as important when you are self-employed as when you are working for an employer, perhaps even more important. Get to know some of the steps you can take to plan for your retirement when you are self-employed. Then, you can get the retirement financial planning process started as soon as possible.
Start a SEP-IRA
One of the steps you can take in planning for your retirement is to open a SEP-IRA. SEP stands for simplified employee pension and IRA is an individual retirement arrangement. It is the main way that people who are self-employed save for retirement.
It works much like any other IRA except that the contribution maximums are much different than other IRA accounts. In 2020 the max contribution to a SEP-IRA is 25 percent of your compensation or $57,000 (whichever is less). For "normal" IRAs the contribution limit is $6000.
Another benefit of a SEP-IRA is that it gives you a tax break. Contributions are made before taxes which means it will lower your taxable income come tax time. That will save you money and will help you save for your retirement.
Get a Solo 401(k)
Another way to go when you are self-employed and planning for retirement is to get a solo 401(k). These are individual 401(k) accounts that you can open as a sole proprietor of a business.
To open one you do need to have an EIN (employer identification number) registered with the IRS to use as your ID instead of your social security number. EINs are quick and easy to get on the IRS website, though. So, do not let this small extra step deter you.
You can get either a traditional or a Roth 401(k) account when you set up a solo 401(k). You can invest up to $19,500 into your solo 401(k) in 2020. It is also an option to open both a SEP-IRA and a solo 401(k) account to save for your retirement when you are self-employed.
Work with a Financial Planning Service
If you are thinking about really starting to invest in your financial future and your retirement when you are self-employed, it may be best to work in conjunction with a financial planning service. These companies can help you to set up your retirement accounts and make sure you are setting aside the right amount of money every month to achieve your retirement goals.
Now that you know some of the steps you can take when you are planning for retirement when you are self-employed, you can be sure that you contact a financial planning service right away to help you with your retirement planning.