Many people think that people who work for themselves have no retirement planning options as do people who work for a wage. It is true that the self employed must pay employment taxes and for their health insurance. But people who are their own boss in fact have many choices of retirement plans.
The fact is that small business owners and others who work for themselves are able to select plans that let them contribute a larger amount of deferred income than people who work for a wage. Take for example the simplified employee pension IRA, or SEP, which allows small business owners to save a large percentage of their tax deferred earnings for their financial future. An SEP is easy to open and easy to administer.
A small business owner can easily open up the SEP account by filing out the right paper work at a brokerage house or bank. Like other plans there are certain stipulations to follow closely. For instance any withdrawals made before the age of 59.5 years will be penalized. The IRS does not even allow loans to be taken out on an SEP, something possible with IRAs and 401Ks.
Withdrawals from the SEP account are considered taxable earnings and an account holder must make regular withdrawals once he reaches the age of 70.5 years. The solo 401k allows a person to contribute up to 20 percent of his income and up to 25 percent if he owns his own business. Contributions to the solo 401k can come from tax deferred or after tax income.
One of the most popular plans is the simple IRA because it is easy to open at any bank. The plan is also easy to administer. A man or women who is working for himself or herself is allowed to contribute one hundred percent of his income if he or she chooses.
Finally, for people who have saved a lump sum of money that is not already tied up in a retirement account should consider the pension annuity. The issuing company takes the lump at the beginning of the annuity payout period. Over a period of several years or even decades, the company issues payments to the purchaser. The total payout is greater than the total amount put in, which serves as an inducement for the purchaser to tie up his or her money with the issuing company.
Contrary to what a lot of people believe the self employed actually have many retirement planning options. It is never to late to start saving for one’s financial future. Whether one chooses the simple IRA, the SEP, or a solo 401k, it is important to start saving today.
Still have inquiries ? [Perhaps check out our resources about the annuity market. Read the latest news concerning to what is an annuity funds.