When you are self-employed you rely on yourself to pay your paychecks and insurance. Without any employer, retirement funding and saving fall on you entirely. That can be a lot to take on all by yourself. Unfortunately, more than 70% of self-employed people are not saving regularly for their retirement.
Irregular income is one of the largest challenges for self-employed people; therefore, opening up a retirement savings account is not always the top priority.
The first step is to set up your retirement foundation. You should open up a retirement account as soon as you know which type of retirement account would be best for you. Just because you have an account open does not mean you have to start putting money in it right away. Having an open account will make it easy for you to be able to contribute money when you find yourself with extra cash flow.
Financial advisors offer several retirement tips that will help get self-employed people started with their retirement savings.
Simplified Employee Pension (SEP-IRAs): Simplified Employee Pensions have a higher limit for contributions in comparison to Roth IRAs and Traditional IRAs. The contribution limits are calculated by a percentage of your net profit. It is a good option for small businesses and partnerships that are closely held because every participant will have the exact same benefits. These plans are very easy to maintain, have flexible funding options and a variety of investment choices. You can contribute up to 25% of your compensation up to $52,000.
Individual 401(k)s: Individual 401(k)s are best suited for self-employed people that do not have any other employees. You are able to make the employer and the employee contributions for yourself allowing you to maximize your business tax deductions and your personal contributions to your retirement. If your business experiences irregular patterns of profits, you should consider this retirement plan type. Depending on your business’s net profit, the contribution limit is up to $52,000.
Savings Incentive Match Plan for Employees (SIMPLE IRAs): If your business has a steady flow of income and the employees would like to make contributions to save for their retirement, this plan might work for you. It allows employees to have salary deferral contributions and you can match a percentage of their contribution. Using a SIMPLE IRA, you can offer employees an incentive and avoid tons of administrative work that is required with a traditional 401(k)
Profit-Sharing Plans: A profit-sharing plan may be a good option for business owners that have variable profit but they want to reward employees by giving employees a percentage of the profits. These plans are extremely flexible. Every year, you can decide how much you want to contribute or skip a year if necessary.
Take Control Of Your Retirement Future: Self-employed people face many decisions every day but they often do not make themselves a top priority. The decisions you make are just as important as the ones you do not make. You can take control of your future by deciding right now to start your retirement foundation so you do not have to work forever. The only person that you hurt by putting it off is yourself.