Retirement Planning For The Self Employed

The number of people working for themselves has increased over the rears. Many start off working part time to establish their business before going to full time. They no longer have an employer paying into their retirement because they now are the employer themselves. There are several options for the self employed to invest in them to prepare for retirement.

If you don’t want to go with a formal retirement plan you can save money on your own by investing in mutual funds, stocks, bonds, CDs, real estate, and money market accounts. The down side to this is there is no tax advantage of doing this. You must also have the fortitude not to touch the funds saved and treat the investment as a retirement account. The upside you pay no penalties for early withdrawal. If enough is saved you can go into early retirement at any age.

Self employed have several tax deferred options to choose. Some of he common ones are Keogh, Simple IRA, Annuities and SEP. Each of these carries certain restrictions. Your situation and status will determine which plan would be best to plan for.

Keogh are more complicated to set and maintain, but they offer more advantages than a SEP. Keogh also come in several varieties which are why they are more complicated. Depending on which version you qualify for you may be able to sock more money away than other plans offer.

Simple IRA is the Savings Incentive Match Plan for Employees of Small Businesses and can be used for the self employed. You are limited on the amount you can put aside which makes other plans more attractive.

Annuity is where you pay into an insurance company in return it agrees to pay either a fixed amount when you retire or an amount based on the amount your investment earned. There is no limit on how much you can pay into the account and you are not taxed until you start to withdraw from the account. The downfall with annuities, they are complex with tax implications, fees, and withdrawal restriction that may not make them a favorable choice.

Simplified employee pension plan (SEP) used by small businesses and self employed. As a self employed person you are the employer therefore fees to fund this plan come from you income. This plan is set up by a financial institution such as bank or by mutual funds.

To make a decision which plan is right for you and your business is difficult to make and should not be made without a financial adviser. Rules and laws are in flux and tend to improve upon plans over time. Each business and business owner has it own circumstances which will effect which plan is right for you. A plan that is good for a similar business may not be a plan right for you for various reasons.

In summary: There are several options a self employed can select to help financially secure their future. The selection should be made with a professional in that field. Each plan has a unique variable which may not suit your taste or your circumstance. There are choices outside of retirement plans that are viable but you must treat these programs as a retirement plan if they are to replace a retirement plan for what ever reason.

For more detail description of these plans use URL www.dol.gov/ebsa, click on retirement savings, then follow the prompt to Small Business Adviser.

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