There are many different types of IRAS that you could use to invest for retirement. If you are self-employed, you not only have the option to use a traditional or a Roth-IRA but you also have other choices that are specifically designed to meet the needs of entrepreneurs who may not have access to retirement accounts through a traditional workplace plan.
Choosing the right IRA is essential, especially as Investopedia indicates that most people are dangerously behind in investing for retirement by the time they reach the age of 40. You should talk with a retirement planning lawyer at Nirenstein, Horowitz & Associates to find out about your options for retirement planning and to get help taking advantage of the tax breaks provided by IRAs so you can more easily save up funds for a secure retirement.
Benefits of IRAs for Entrepreneurs
Entrepreneurs who are self-employed do not benefit from having an employer who can provide a defined benefit retirement plan or a defined contribution retirement plan. Rather than just being able to count on a pension from an employer or being able to invest in a 401(k) provided by an employer, a self-employed entrepreneur must make his own investment decisions to save for future financial security.
IRAs can be invaluable to anyone who is investing for retirement, because Individual Retirement Arrangements allow for either tax-free contributions or tax-free growth. The tax benefits mean that the government helps to subsidize retirement savings.
IRAs have contribution limits, but those limits can be higher for eligible self-employed individuals, in recognition of the fact that self-employed men and women need more independent options to save for retirement. Nirenstein, Horowitz & Associates can provide assistance in considering the types of IRAs that are available to individuals who work for themselves and who are thus on their own when it comes to retirement savings.
Types of IRAs for the Self-Employed
Self-employed individuals could opt to simply use a traditional or a Roth-IRA. However, entrepreneurs should also consider options that are available only to people who earn non-wage income by running their own businesses.
Some of the different options for self-employed entrepreneurs to consider include a SEP-IRA, a SIMPLE IRA, and individual 401(k) plans.
A SEP-IRA has many of the same features as a traditional IRA. However, you must own a business, have at least one employee, or be earning income from freelance work in order for you to be eligible to take advantage of a SEP-IRA. Only an employer can contribute to a SEP-IRA. If you employ yourself, you are considered an employer who can make contributions.
A SEP-IRA can be preferable to a traditional IRA for individuals who are self-employed because there are higher limits on the amount of money that you are allowed to contribute to a SEP-IRA each year. Unlike a traditional IRA with a maximum contribution limit of $5,500, you can contribute the lesser of 25% of your freelance / self-employed income or $54,000 as of 2017.
A SIMPLE IRA is another option. SIMPLE stands for Savings Incentive Match Plan for Employees. Employees are allowed to make contributions to a SIMPLE IRA, up to a maximum of $12,500 if they are under 50 and $15,500 if they are over 50. Employers also must make contributions of either a percentage of an employee’s compensation or a dollar-for-dollar mach of an employee’s SIMPLE IRA contributions, up to a set percentage of the employee’s income.
An Individual 401(k) is another option, which works in a similar manner to a traditional 401(k) that a company would offer, but only a business owner with no employees may open one to cover himself/herself and a spouse. A self-employed person acting as an employer can contribute elective deferrals up to 100% of compensation, up to the maximum annual limit of $18,000 in 2017 or $24,000 if you’e 50 or older. Non-elective employer contributions are also allowed.
Getting Help from A Retirement Planning Lawyer
Determining which of these options you are eligible for, which is right for you, and how much you contribute can all be very challenging. It is important that you make informed choices so you can maximize you investments in accounts that provide you with tax benefits for retirement investing.
Nirenstein, Horowitz & Associates can help you to come up with a comprehensive retirement plan using different types of IRAs. We offer retirement planning assistance both to entrepreneurs who are self-employed and to individuals earning traditional wage income. To find out more about how we can help, give us a call at 860-548-1000 or contact us online today. You can also join us for a free seminar to discover more about the retirement planning services that we offer.