Since we are self-employed, it is up to us to set up our retirement plan and to be disciplined enough to fund it.
Here are some of the basic plans that I found from doing a little bit of research:
One-Participant 401 (k) – Tax Deductible
This plan is for sole proprietors with no employees, other than a spouse working for the business. With the 401 (k) you get to contribute as the employee and the employer, giving you a higher limit than many other tax-advantaged plans. In 2019 you can contribute up to $19,000, or $25,500 if your age 50 or older. If your spouse is working for you, he or she can also make contributions up to the same amount, and then you can match those.
To start an individual 401(k), a business owner needs to work with a financial institution.
SEP – Simplified Employee Pension is an option for sole proprietors and allows for one or more employees.
Funding a SEP IRA is regulated by a percentage of profits, and the employer is the only contributor. If you have employees in this plan when you contribute to the SEP IRA, you must contribute to all of the eligible employees.
The account is simple to set up and can be done online or at a brokerage.
Roth IRA – Named after a Delaware Senator and established by the Taxpayer Relief Act of 1997. The Roth IRA is very similar to the traditional IRA with the most significant difference being how they’re taxed.
For the 2019 tax year, an individual can contribute up to $6000, and if over the age of 50, an individual can contribute up to $7000.
Consider opening a Roth IRA if you are interested in tax-free income when you retire instead of getting the tax break when you contribute.
A financial adviser can help you decide what type of fund is right for you. The key is to get started TODAY. Even if it is a small amount take the first step no matter your age.
For me, the best way to fund our retirement account is to consider our contribution as a bill that must be paid each month.
Disclaimer: I am not a financial advisor and this is information I found searching the web with my interpretation.