Working as a self-employed individual can be a very rewarding career choice, but it can present some challenges. One of the common challenges that self-employed individual space is figuring out how to save for retirement. It’s not as easy as relying on a company pension or putting money into the company retirement plan. If you’re self-employed, here are some strategies that you’ll want to consider for retirement saving.
Using an IRA
The individual retirement account or IRA is one of the options that you have when you are self-employed. It comes in a traditional format and a Roth format. With the regular IRA, you get to save money that you are yet to pay any taxes on it. Then you pay taxes on the money as you withdraw it during retirement. In the case of a Roth account, you pay taxes on the money before you deposit it into the account. Then you do not have any taxes to pay after you hit retirement.
While many people think of the 401(k) as a retirement option for companies only, you can set up a 401(k) as an individual. With this option, saving money is easier than with any other account. You have a large personal contribution limit each year, and then you can also make matching contributions since you’re the owner of your business. You also have the option of making contributions for your spouse under this arrangement. With this approach, it’s possible to set aside more than $100,000 every year between you and your spouse if you make that much.
The SEP IRA is another account option that you have when it comes to being self-employed. With the SEP IRA, you get to contribute as much as 25 percent of your pre-tax income to the account. This makes it possible to save money on a faster pace than what you can with a regular IRA, and it’s not quite as complicated as setting up a solo 401(k). With the SEP IRA, you should also have plenty of investment choices to pick from just like you would with a regular IRA.
With any of these options, you should be good when it comes to saving for retirement. Regardless of which account option you choose, you’re going to have to be proactive and start saving money. None of these will work if you don’t take the initiative to save money every single year.