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Self-Employed? These Retirement Planning Tips Are for You

Retirement Planning Personal Finances

This year's Super Bowl featured a comical advertisement showing senior citizens engaged in odd jobs normally reserved for those who are younger, like being a DJ and running a dog walking service. The punch line is that these people didn’t mindfully plan for their retirement and are likely to be working into their 80s.

For some, this type of situation isn’t funny as it might be your reality, especially if you're one of the growing number of people who are running their own business. Being self employed don’t necessarily come with the benefit of an employer-sponsored retirement plan where the company matches your contributions. While your retirement plan might be to work until you are 90, wanting to and being able to do so are two very different things. Or, maybe you’re simply looking into alternative methods of saving money for your retirement years. Either way, here are some helpful tips to mindfully put you on the right path.

Individual Retirement Accounts

Individual Retirement Accounts (IRAs) are perhaps the plan most of us are familiar with. There are several types of IRAs, like Roth IRAs and Simple IRAs. The accounts are designed with simplicity in mind. They are structured to make you think twice about trying to draw out funds before you reach retirement age and are a good option for people just starting out on their self-employment journey.

There are many different types of IRAs and they all have different strengths. Some may be better for those running their business with employees while others may be better for self-employed people who work alone. Some, like the traditional IRA offer a tax benefit as you contribute, while others like the Roth IRA, provide a tax benefit once you start drawing those funds in retirement.

Simplified Employee Pension (SEP) IRAs can be a good option for an owner who wants to help his or her employees save for their retirement. With a SEP IRA, the employer contributes to the plan, not the employees. SEP IRAs also work well if you are your only employee as then you contribute to your own plan as the employer.

Solo 401(k)

If you are running a solo business and have started to make good money, you may want consider a Solo 401(k). A Solo 401(k) is similar to a retirement plan you may be familiar with if you had one previously with an employer. As a self-employed person, you can contribute to your Solo 401(k) as your own employee. You can also contribute to it as the employer. However, as the name implies, a Solo 401(k) won't work if you have multiple employees.

Explore Your Options

Perhaps one of the most important things you can do while mindfully planning for your retirement as someone who is self-employed is navigating your options. Consider giving thought to your career plans on your self-employment path. Don't forget about your family and children and consider what you’ll need to do to care for them as well. For instance, is your retirement planning a part of a larger plan that also includes saving for college?

Creating a strategy for your retirement plan can provide you with a solid target to hit, inspiring you to work towards a more relaxed and abundant life. But don't get too hung up on retiring as early as possible. A recent study by NPR showed that people who work past the age of 65 tend to live longer than those who retire early. Maybe that crazy commercial with the senior citizen DJ is on to something after all!

If you're self-employed and need help finding a retirement plan for your business, let's talk through your options together. Schedule your call here.