Retirement Hurdles for the Self-Employed

If you are self-employed, saving for retirement can become more difficult. Many large companies offer benefits to employees, including retirement plans. Large companies can do this because they have more resources; further, the cost per employee is much smaller when there is a large number of employees on one retirement plan. Setting up a retirement plan for just one person is never easy. However, just because you are self-employed, you are not immune to the challenge of saving for retirement. Plan for your future with these solutions.

My Income is Too Low to Benefit from Tax Breaks

Many self-employed individuals do not earn a large amount of money. For example, yoga teachers, personal trainers, writers and photographers may earn a livable salary, but not much more. Since the taxable incomes of these professionals are low, they do not benefit much from deductions on standard retirement plans. If this is you, you should still save for retirement. Help yourself do this by setting up a Roth IRA. With the Roth plan, you do not deduct contributions this year. Instead, the contributions grow tax free for their entire life in the retirement fund, and you owe no taxes on the funds in retirement. 

I Do Not Have the Time to Manage my Retirement

Self-employed individuals often have to "do it all" for their businesses. They are the sales person, the manager, the service team and the accountant. Managing one more account does not make the job any easier. Fix this problem by going with a low documentation, low management retirement option, such as an SEP IRA. Here, you set up the account once with an IRA provider. That provider will manage your investments for you. You can choose either a Roth or Traditional IRA, whichever suits your tax needs best. Set up automatic payments to the account from your bank, and you never have to think about your retirement account again.

I Do Not Earn a Predictable Salary

While direct depositing funds into your retirement account is easy, it will not work if you are not earning a predictable salary and a steady paycheck. For example, a music store owner may earn $100,000 once the books are closed at the end of the year. But, did not know what her take home would be until after the holiday season, which made it hard to pre-plan. In this case, it may be easiest to choose an accounting method that allows you to make contributions based on your profits as a business owner, rather than your income as an employee of your business.

If you do not take home a regular paycheck from the business you own, you can opt for this method to ease your burden. Simply calculate the profits of your business at year's end, and use this as your annual salary. This figure can then be used to calculate your retirement options in regards to how much you are permitted to place into a tax deferred account.

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