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  • Writer's pictureCoach Deborah Franklin

3 Popular Retirement Savings Options for Solopreneurs

As a solopreneur, you value the ability to work for yourself, but may have to do some investigation into options for retirement savings. Self-employed people do not qualify for regular retirement plans, such as a company-sponsored 401(K), but there are still plenty of choices. The following are three categories of retirement options for solopreneurs.

Solo 401(k)s

Although the traditional 401(k) option is not available to an entrepreneur, there are solo versions of the 401(k) model. With the traditional 401(k) plan the employer matches employee contributions to retirement plans. Under this framework, you are in the category of both the employer and the employee.

Discuss with a reliable broker how to set up a 401(k) and which plan is best suited for your needs. Like IRAs, you can choose a Roth version which you contribute with income that is already taxed and eliminates the need to pay taxes when the money is withdrawn. A regular 401 (k) is set up with pre-tax contributions and taxes will need to be paid when the money is withdrawn.

For a solo 401(k) plan, you first set it up and make contributions as an employee of up to $19,500 and then add to this as an employer for a combined maximum of $57,000. If you are over 50, you may be allowed to contribute more annually.

Individual Pensions

Usually, you have to be employed by a company to be paid a pension, since pensions are paid at a set amount per year after your retirement. Pensions have the advantage over 401(k) plans because they do not depend on the performance of investments.

Your broker can help you set a pension that will enable you to set aside money every year for retirement. Contributing money to this pension can reduce your tax burden. Once you have retired, you can then purchase an annuity set up by an insurance company that will establish a pension for you with monthly payments.

However, be careful with annuities. There are unfortunately many scam annuity programs and dodgy brokers who make large commissions on them. Talk with a trusted financial advisor before taking this option.

A Selection of IRAs

There are several different IRAs you can choose from Regular IRA, Roth IRA, SIMPLE IRA, and SEP IRA. A traditional IRA is tax-deferred and can reduce your tax burden for the year, but you will have to pay taxes when you withdraw the money. The maximum is $6,000 for people under 50 and withdrawals before the age of 59 carry a 10% penalty fee.

A Roth IRA is the right choice if you do not want to be taxed at the time of withdrawal. The Roth IRA is set up with income that is already taxed. To open or contribute to a Roth IRA, your gross income must be less than $124,000 or $196,000 for married people filing jointly.

A SIMPLE IRA is like a regular IRA with much higher contribution limits, up to $16,500 for people over 50. For a SEP IRA, you must be a sole proprietor or business owner in a partnership or a limited liability company. The maximum contribution for a SEP is 25% of your income or $57,000 whichever is the lowest amount.

Seeking Guidance on Setting Up and Choosing a Retirement Option

When you are exploring your options for retirement as a solopreneur, it is worthwhile to seek guidance from a trusted financial advisor or broker. Research the broker well and ensure they are regulated and have a solid reputation. The advisor can guide you on which choice is right for you and can assist you in setting up a retirement fund.

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