While being self-employed offers you a great degree of professional freedom, there are several challenges that you may face when trying to save for retirement. In traditional businesses, the company often offers a 401(k) savings plan to help you reach your retirement goals, but what happens when you work for yourself? What options are available to you as your own boss? Here are two IRA (individual retirement account) options to help you start saving for your future without relying on the backing of a larger company.
A SEP IRA is a traditional IRA designed for self-employed individuals. This kind of IRA is ideal for business owners with employees and freelance workers alike. Each contribution you make to the SEP IRA is tax deductible. Over the course of the year, you can contribute up to 25 percent of your net earnings up to $53,000 in 2016. Most SEP IRAs have low fees and are easy to set up, making them an ideal option for the busy freelancer or business owner. Funds in the IRA can be invested in stocks, bonds, mutual funds, and other such investments in order to grow your savings. Early withdrawal from a SEP IRA is set at a 10 percent penalty.
A SIMPLE IRA functions like the SEP IRA, with the main difference being in the contribution limit. The IRA allows a self-employed individual to contribute money on a pre-tax basis and the money in the IRA is only taxed upon distribution. Contributions for 2016 are capped at $12,500, but if your earnings from self-employment fall under that number, you can put 100 percent of your earnings into the SIMPLE IRA.
As a self-employed individual, it can be important to seek out advice about wealth management and retirement planning in order to make the most of your options. Contact our experienced retirement planners today for your free consultation and get started planning for your future.