By The self-employed can get countless rewards to themselves personally and financially along with a retirement plan even they don’t have any employer who can offer them retirement plan. You can take advantage of several plans available to entrepreneurs as per your need and financial status.
One advantage is that the tax code provides generous benefits to small business owners to encourage saving for retirement and generally the contributions that are being made into these plans are tax-exempted.
The retirement plans available for people who are self-employed are as follows;
SIMPLE IRA
As the name itself suggests, it is very simple. The real name of this type of plan is Savings Incentive Match Plan for Employees of Small Employers and is intended for businesses with fewer than 100 employees.
This plan allows you as an employee of your own business contributing up $11,500 ($ 14,000 if you exceed 50 years). The employer or your business, you must make a matching contribution of up to 3% of your compensation, which in turn may be tax deductible.
As employee contributions are also deductible, they are not subject to taxes until the funds are withdrawn. If withdrawals are made before age of 59½, they are also subject to 10% penalty that is applies to IRAs and early withdrawal tax of 25% if this is done in the first two years of participation in the plan.
SEP IRA
Simplified Employee Pension (SEP) is also an easy and inexpensive way to open and maintain. This plan is very popular and it is the employer who makes the total contribution.
It is very convenient for sole traders as it represents a basic way to accumulate savings before taxes, and you can contribute up to 25% of your net income or a maximum of $50,000 whichever is the lesser. Likewise, all contributions are tax deductible, while taxes on investment earnings are deferred.
Many business owners consider it perfect for the ease and low cost maintenance of the account and provide flexibility in the amount and time to make the contributions. In addition, this plan is very appropriate if your business profits tend to fluctuate considerably from year to year since at any moment you can change the amount of the contribution or skip a year of losses.
401(k)
This plan is limited to the business owner and his/her spouse, as it is exclusively designed for them. This plan allows you to make contributions in excess of those permitted under the SEP and SIMPLE plan amounts, and you can have the role of employer and employee at the same time. As an employee of your own business, you can contribute up to 100% of your income to the plan up to $17,000 (if you spend 50 years, you can make an additional contribution of $ 5,500) and additionally as an employer, you can contribute up to 25% of net profits of the business as a participatory contribution of profits. This plan is very beneficial for individuals who wish to accumulate substantial amounts for retirement.
As you can see there are different choices available for planning your retirement, and the right choice depends on your current situation and your vision in the long term. For making a perfect choice, you can consult with GoldLeaf Retirement Plans Services.
