Retirement for Self Employed: US Self Employed Are Facing a Huge Retirement Crisis

Retirement Plans for Self Employed Individuals

Retirement Plans for Self Employed Individuals

“If my dreams could all come true paradise/retirement would be — in a little bungalow — somewhere by the sea.”
Author Unknown

Isn’t that what we all wish for? Retirement is one place where we look for comfort and wish to spend days doing nothing productive. Why one shouldn’t? After all, we have worked all our lives and a comfortable retirement is what we deserve at the least.

However, the dream for a happy retirement is looking somewhat shady for the American Entrepreneurs and Small business owners. According to a survey conducted by TD Ameritrade in 2013, nearly 40% of the self-employed individuals are not regular with their retirement savings whereas 28% have no savings and do not invest in any qualified retirement plans. A large part of this workforce agreed that they had to stop their retirement investments at one point or another because of a business or personal requirement.

What are the beliefs of self-employed professionals?

There is no doubt about the effective intelligence of entrepreneurs; however, they neglect retirement savings because of various reasons. Some of these reasons are listed here:

  • Business will provide sufficient savings for their retirement.
  • Strong belief that business will keep making sufficient profit and they don’t have to save for future.
  • Entrepreneurs invest all their profits back into the business for better growth.

Well, it sounds like a safe haven; however, there is no guarantee about the next paycheck. How would you survive without a regular income stream? That is where retirement options kick in. For an efficient retirement plan, start by preparing a cash flow plan for your retirement and make sure to include all your expenses in the process. This simple yet effective process will help you picture your retirement needs and the kind of income you would require to sustain you current lifestyle. You can choose a retirement plans for self employed individuals accordingly.

3 Retirement Tips for Self-employed Professionals

  • Create a systematic approach: One of the key tips is to create a systematic approach for retirement savings. Setup an account with automatic deduction feature and invest this money in a Solo 401(k) towards the end of the year.
  • Choose a plan that works for you: It is important to choose a retirement plan that works for you and suits your business requirements. Another important metrics is to evaluate the amount of money that you can contribute towards your retirement and choose a saving option such as Checkbook IRA. Further, you can always catch up with additional investments for retirees and balance overall savings.
  • Consistency is crucial in retirement savings: Above everything else, it is important to develop consistency in your retirement savings. Without regular contributions, you won’t be able to reach your target amount and one should never underestimate the power of compounding interest in retirement savings.

Important terms related to self-employed retirement:

  1. Retirement plan for self employed individuals
  2. Self employed 401 k
  3. Self employed pension

Having a 401k for Self Employed Can Be More Affordable Than You Think

401k for Self Employed

401k for Self Employed

It is a common understanding that there are fees associated with setting up and maintaining a 401k account. That is why some self employed business owners are hesitated to set up a 401k fund for themselves, thinking that expensive fees will eat up any return they may earn. However, this is not always true as a 401k for self employed individuals can be more affordable than most people expected. The key is to choose the right type of account, right provider, and take advantage of tax deduction available to keep the cost down low.

Self directed Individual 401k

A self directed account is the secret to keep your cost down. Traditional 401k accounts provided by banks, custodian or trust companies are often charged with expensive fees as the provider often takes charge of your investment portfolio. While these accounts may require a little less work, they are usually more expensive to maintain. With a self-directed individual 401k, account holders can make investments and take control of the portfolio by themselves. This helps eliminate a lot of management fees and help raise your rate of return.

Choosing the right provider

Each plan provider have their own fee structure, so make sure to talk to your provider and learn of any cost and fee there might be. Also, the best 401 k plan providers will offer a full range of service to help you properly maintain and grow the fund. For example, Solo 401k requires no tax filing if your account has less than $250,000 in assets. If you have a larger account and need to file tax, it is better to have a provider who can also help you file tax and avoid unnecessary fees and penalties.

Tax deduction

Most people often overlook the fact that you can claim a tax deduction for the cost of your 401k account if it is paid for from your business fund. Just like any other business, a small, self employed business with no other employee can also claim the cost of retirement plan and contribution to employee’s retirement fund as an expense. This tax benefit will lower your tax bill, and in turn, offset your overall cost of having a 401k.

Costs and fees will lower your overall rate of return and that’s why experienced investors are always looking to minimize their costs. A self directed 401k for self employed individuals will help you achieve that goal, among many other advantages.


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Retirement Plans: Common Retirement Mistakes Made by Small Business Owners

Best retirement plan for self employed

Best retirement plan for self employed

There has been a lot of discussion over the insufficient retirement savings of the American adults and aging population. However, there is a particular group that has not received any attention in the past several years i.e. Small business owners.

According to a study conducted by the American College, as many as one-third of the small business owners do not invest in a sponsored or personal retirement solution such SEP IRA or solo 401(k). Further, nearly the same number of people has no idea of their expected income requirements after retirement. It might have been okay in case of employees considering the pension plans offered by their employers would do the same; however, it is quite surprising in case of small business owners because they do not have anyone to provide income in their golden years.

Small Business Owners: What are the primary reasons of having no retirement plan?

  • Survival in business is the priority: It is quite common among startup and growing business owners to re-invest in their businesses instead of planning for their retirement. Retirement plans are often suppressed during financial crisis and volatile market conditions.
  • Relying on business to pay for retirement: A large ration of small business owners rely over the residual business income for retirement and some even selloff the business at the time of retirement. Most of the business owners do not rely over stock investments or bond funds as their retirement plans.
  • Retirement is not in the picture: A large part of these enthusiastic business owners involve people who love their business and would continue to work in it. Life without their business is hard to imagine. They just enjoy the moment and keep on working as long as their circumstances allow it.

Are these reasonable practices? Well, definitely not because most of the small business owners often find themselves running short of funds either because of failing business or insufficient savings in their later retirement years.

What are the retirement plans available for small business owners?

It is crucial to invest in different types of qualified plans and build a retirement nest starting early in life. The market is full of retirement plans for self-employed and small business owners. Another benefit of investing in retirement funds is the tax saving they offer along with the financial security.

  1. Solo 401(k)
  2. SEP IRA

If you are a small business owner, it makes perfect sense to start investing in a retirement fund starting this year. After all, you deserve to live a comfortable life after several years of hard work.

Most Common Mistakes with Retirement Accounts for Self Employed Individuals

Retirement Accounts for Self Employed

Retirement Accounts for Self Employed

Self-employed individuals are very business-savvy, ones that are strong and independent enough to stand on their own feet. However, even the best among us might make mistakes sometimes when it comes to retirement plan. With so many pressing issues at hands to keep your business off the ground, your retirement prospect just seems to be so far away. Correcting the mistakes now could give you thousands of dollars when you need it the most. Let’s take a look at some of the most common mistakes people are making with their self employed retirement account.

1. Not saving enough

The most popular feature of a Solo 401k account is its high contribution limit, which totals up to $56,500 per year. Once you have the retirement plan though, it is your decision to max out that limit or not. Decide how much you need to save for retirement, and make yourself reach that goal. We think it is a wise decision to save as much as you can. This money will grow on a tax-deferred basis, so the sooner you start saving, the better you can take advantage of this tax benefit.

2. Not knowing what type of investments are in your portfolio

Retirement accounts for self employed individuals offer the widest variety of investment options, ranging from stocks and bonds to real estates. It is easy to give it all up to your custodian to make the investment decision for you. However, at least try to understand what is in your portfolio in order to decide if it is the right solution for your future. Ideally, the flexible plan is created to give account holders more control and you should take advantage of that with a self-directed account. This way, you will be able to make investment decisions without the spending too much on custodian fees.

3. Forgo the loan option at all costs

Although it is true that taking money out of your retirement account is not an ideal solution, but the loan option can be beneficial in certain situations. What people often overlook is that the interest to borrow from your Solo 401k is much lower than the interest rate of a traditional bank loan. The unique feature of this retirement plan is that qualified loan is tax free and penalty free. Just remember to consider your options, and abide by the Solo 401k rules to avoid unnecessary penalty.

Overall Solo 401k is one of the best retirement accounts for self employed individuals, and setting up a Solo 401k is the first step to ensure a secured retirement. The next step is to keep your fund in check and ensure that you make the most out of your retirement account.


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How to Decide if Self Employed 401 k is Right for You?

Self Employed 401 k

Self Employed 401 k

Once a new business starts to gain momentum and make profit, it’s time for the owner to think ahead about the financial future of the business and of himself. Most often, a self employed 401 k is the first thing to be brought up, as it’s never too early to start saving for retirement. So is this the best retirement plan for self employed business owners? Here are three questions to ask yourself to decide if it is the right retirement plan for you.

 Are you eligible for the plan?

Self employed 401 k is designed for owners of small businesses and freelancers, who has no other full time employee. In order to qualify for the plan, a person has to prove that he or she is engaging in a self employed activity and has generated income from that. Besides owners of retail shops or other businesses, freelancers can qualify as well, with examples include freelance consultants, doctors or physicians with private practice, or even teachers who give private lessons.

Does it mean you cannot have any helping hand at all? Self employed 401k rules stated that the business cannot have any full time employees. That means you can still hire part time employees who work less than 1000 hours per year for the business, or hiring independent contractors to help with your work.

How much are you planning to save?

With a traditional 401k or an IRA, you will usually make contribution as an employee in term of salary deferral, or as an employer with the profit sharing option. An individual 401k plan allows you to make contribution as both salary deferral and profit sharing. Therefore, the plan allows you the highest contribution limits of up to $56,500 annually. So if you plan to catch up with your retirement savings, this plan will be the best bet.

How much time can you spend on deciding the plan investments?

Certain retirement plans require you to have a custodian who takes care of all investment for you. With a Solo 401k, however, you can choose a self-directed account with checkbook control. This will give you total control over the investments and making the decision is as easy as writing a check. This plan is perfect for experienced investors who would like to take charge of their retirement fund. All decisions can be made quickly without the lengthy process of getting approval from a custodian.

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Retirement for Self Employed: Top 3 Tips to Setup a Retirement Plan

Tips to set up retirement for self employed plan

Tips to set up retirement for self employed plan

Being self-employed doesn’t mean that one cannot have the same retirement saving options as other salaried employees. In fact, the market is flooded with financial schemes offer comfortable retirement for self employed. Unlike the common belief, being self-employed allows you to make your own retirement choices. However, you need to consider several factors before you can choose between conventional IRA and a solo 401k plan.

You have to start from the ground level and find out the meaning of financial terms before making a choice. Here are some tips that will help you in making a favorable retirement investment.

Identify Your Retirement Needs

When you plan to setup your retirement plan, you have the liberty to list down your financial requirements and prepare a tailored plan accordingly. If you are planning to buy a new vacation home during retirement, you should include it in the plan and anything that would require a substantial amount of money is to be included in the list. Some of the most popular areas that self-employed professionals consider are given below.

  • Easy to manage: Unlike the top management who has the tools to study different retirement plans, you need to choose a plan that is easy to manage. Choose a plan with minimal paperwork and easy correction facility.
  • Low maintenance cost: Plans with low maintenance cost get a priority from small business owners and you should choose the same. A plan that comes with lower maintenance fees is something you should be heading towards.
  • Plans with roll over option: Sometimes, it makes sense to choose a plan that offers sufficient portability, especially if you want to switch business or switch to a job in near future.

Choose Among Retirement Plans in the Market

Once you have a list of your retirement needs and investments, it is time to navigate through the different options available in the market.

  • Simplified Employee Pension (SEP): SEP is an excellent tool for self-employed individuals as well as small business owners. You can contribute up to 25% of your business income up to a limit of $52,000 for 2014.
  • Solo 401(k): Solo 401(k) plan is a retirement option for self-employed and allows them to save up to $17,500 as employee deferral contribution and up to 25% of their business income towards profit sharing side (maximum $52,000). It comes with additional $5,500 catch up contribution for over 50 years of age.
  • Simple IRA: This plan is comparatively easy to manage and several financial institutions as well as banks offer this plan. You can put in up to $12,000 and up to 3% salary contributions towards the plan.

The key is to find out your retirement requirements and prepare a retirement for self employed custom plan. After all, you have done your part of work and it is time to enjoy your life.

Questions to Determine if You Have the Right Individual k Plan Provider

Individual k Plan

Individual k Plan

Having an individual k plan is a great way for self employed business owners to start saving for their retirements, and to take advantage of tax benefits and tax deductible options available to them. While having an individual k plan is a good decision, account holders will also have to choose the right plan provider. Here are a few questions to ask yourself to decide if you have the right plan provider.

1. Does your plan provider offer only their own investment products?

Often, if you have an individual k account with a bank or a brokerage firm, the plan provider will naturally try to sell you their own funds and other products. In this case, it is hard to decide if they truly believe the products are profitable investments. For unbiased recommendation, it’s best to go with an independent investment advisor. This way you will be introduced to top performing assets available on the market, without being restricted to one firm’s offerings.

2. How much are you paying in term of fees and charges?

Ask your provider up front about their fee schedule. A good plan provider will offer full service package with little to no additional fees. An account holder will usually have to look out for transaction fees, recordkeeping and administration cost, and trustee or custodian fees if any.

3. Have you considered a self-directed account?

A self-directed Solo 401k account allows you to become the trustee of your own retirement plan. Thanks to that, you will be able to access the fund via checkbook control and make investments on behalf of the fund. This is a widely popular option for self employed individuals, as it also opens up a lot of investment opportunities in non-traditional assets, such as real estate, tax liens, precious metals and private businesses. This option will also eliminate the needs to hire a custodian and any cost associated with that.

However, not all plan providers allow this option. Therefore, if you are considering becoming the trustee of the plan, make sure to go with a truly self directed individual k plan.

4. Does your plan provider offer loan option?

Although the IRS permits borrowings from Solo 401 k plans, not all plan providers are on board with this. Some plan providers do not allow individual 401k loan option at all, some will only process the loan application with a fee. Other plan providers, however, will facilitate the loan application as part of their service and without any extra charges to account holders.

Generally, loan option is a great help as you will be able to borrow money from your retirement plan tax-free and penalty free. If loan option is important to you, make sure to discuss this with your plan provider.