How to save for retirement if you’re self-employed
November 13, 2020
November 13, 2020
Planning for retirement is complicated. All the different choices can seem like alphabet soup — whether you’re considering an IRA, 401K, or HSA.
And, if you’re one of the nearly 30 percent of Americans that are self-employed, you don’t have guidance on investment options through your employer. In this article, we’ll help you unpack the various alternatives available for self-employed workers, as well as options for small business owners and operators.
Here’s a snapshot of some of the most popular retirement investment options.
A traditional IRA (individual retirement account) allows you to set aside a portion of your income for retirement on a pre-tax basis.
A Roth IRA allows you to set aside after-tax income up to a specified amount. Earnings and withdrawals are tax-free after age 59 ½.
You can invest net earnings in a SIMPLE IRA plan along with a matching contribution.
Like other traditional retirement accounts, SEP IRAs let you defer taxes on contributions and any investment growth in the account.
A defined benefit plan is similar to a traditional pension plan with a stated annual benefit you will receive at retirement.
A Solo or Individual 401(k) plan offers self-employed workers and business owners many of the same benefits of a traditional 401(k).
Who it’s for:
How it works:
In addition to these investment options, health savings accounts (HSAs) are another vehicle for saving for retirement. HSAs allow you to set aside money for qualified medical expenses, and offer many tax advantages:
Who it’s for:
How it works:
– Any interest, dividends, or capital gains you earn are nontaxable
– Withdrawals for qualified medical expenses are tax-free
– Unlike a 401(k) or IRA, you don’t have to begin withdrawing funds at a certain age
Because there are so many possible ways to invest, having a professional advisor in your corner can make a big difference.
There are many types of advisors available, depending on your needs and budget. Options include traditional financial advisors, online planning services, and even robo advisors that use computer algorithms to create and manage your portfolio for a small fee.
Just like traditional employees, self-employed workers and business owners have many ways to build a nest egg for retirement. The sooner you start saving, the better positioned you’ll be when you retire.
For more investment information, Investopedia is a great resource for financial definitions and investing essentials.
This content is for informational purposes only; you should not construe any such information as legal, tax, investment, financial, or other advice. Field Nation has no affiliate partnership with any person or business mentioned in this post.
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