There are a lot of great things about being self-employed. Being your own boss is a wonderful experience, as is setting your own schedule and calling all the shots about what kind of projects you do – and don’t – want to take on. However, there are also many different challenges associated with self-employment. For instance, you’re in charge of every single aspect of your business. You have to court new customers, take care of your own marketing to drum up business, deal with vendors and of course, you have to take care of your customers at the same time by providing them with your products or services.
One of the challenges of being self-employed has to do with retirement planning. Unlike working for someone else, particularly a larger business, there’s no one providing you with a 401k or other employer sponsored retirement plan. However, that doesn’t mean that there aren’t options available to self-employed individuals to save for retirement, although some of them may be more expensive than comparable plans from other employers.
One of your options is an individual 401k, which is in many ways like the retirement plans that many employers offer, but they’re more flexible than their traditional counterparts, since there are no required contributions on your part. You can decide when to contribute to your account and how much, although they are often more costly, but they do let you contribute more to your retirement savings than most employer sponsored plans.
Individual retirement accounts are, in many cases, the best option for people who are self employed. If your business is doing very well (as in, your income is more than $100,000 per year as an individual or you and your spouse earn $160,000 or more annually as a couple), then a traditional individual retirement account may be the best option. These tax deferred accounts let you contribute pre-tax income and earn interest and dividends on your contributions, with these funds being available to you once you reach the age of 59 ½ years – earlier distributions from your individual retirement account are possible, but will incur tax penalties.
A Roth IRA is another option which will suit the needs of most self employed individuals, since you’ll be eligible to open one of these flexible individual retirement accounts if your income is lower than the limits listed above for traditional IRAs. A Roth retirement account gives you more options and as a self employed person, you need all of the flexibility you can get to help you to plan for your retirement. Planning for your retirement when you’re self employed is yet one more challenge which self employed individuals faced, but it is one which you can handle. If you can run your own business, you can definitely open an individual retirement account to ensure a comfortable retirement when you decide it’s time to stop doing business full time.
Are you self-employed? How are you planning for your retirement?