Being independent has its advantages. You do not have a boss to tell you how many days of holiday to take, or what retirement plans you have to choose.
On the other hand, you do not have a boss to make you take your vacation time (or pay for it), or to set up retirement plans for you and encourage you to take advantage of them. You are the boss, and if you want to be ready for retirement, you need to get there.
First, learn about the options for independent pension plans. One or more of them may be right for you:
traditional IRA and Roth
Most people are familiar with the schemes individual retirement, called IRA. IRAs are easy to install and easy to contribute. If you use a traditional IRA, you may be able to deduct your contributions for the year. This can be a great motivation for your contribution.
If you use a Roth IRA, you can not deduct your annual contributions, but you can take your withdrawals, including interest and other income on the account, tax free after your retirement.
you can not borrow from an IRA. If you take withdrawals from a traditional IRA before retirement, and you do not meet one of the exceptions, you may have to pay a penalty of 10 percent in addition to the income tax on your withdrawal.
With a Roth IRA, you can generally withdraw your contributions (but not interest and other income) at any time without penalty.
Another disadvantage of IRA is that you are very limited to how much you can contribute each year. Your maximum contribution is $ 5,500 per year, or $ 6.500 if you are 50 or older at the end of the year. If you want to make faster progress on your plan, keep reading.
SEP IRA
SEP IRAs are also easy to set up as the "Simplified Employee Plan" implies it is a good choice if you're late. - You have until 'that your business return date, , including extensions, to set up a SEP IRA and make matching and non-elective contributions. anyone with self-employment income can set up on September 1 IRA.
You can generally contribute more to Sept. 1 IRA than a traditional IRA or Roth. The maximum contribution in 2015 and 2016 is 25 percent of your net income from employment after deduction of self-employment tax, up to a maximum contribution of $ 53,000.
you can not borrow from September 1 IRA, and you can face a penalty of 10 percent if you take withdrawals before retirement.
SIMPLE IRA
a SIMPLE IRA can be a good choice if you want to set up an incentive match plan savings for your employees, you have 100 or fewer employees, and you do not maintain another retirement plan. You must implement the plan by October 1st of the tax year.
Your employees can make a salary reduction contributions to their SIMPLE IRAs up to $ 12,500 per year, or $ 15,500 if age 50 or older. You can also make the employer matches from 1 to 3 percent.
You can not borrow from September 1 IRA, and you can face a penalty of 10 percent if you take withdrawals before retirement. The penalty can be 25 percent if you withdraw funds within two years of the date you first participate in the plan.
Solo 401 (k)
A 401 (k) plan is for Solo Entrepreneurs who have no employees, other than the spouse. It is a good choice if you want to rent your spouse and add to the plan. It is also a good idea if you want to contribute a lot to your plan.
As a business owner, you are contributing to your own plan as both an employer and an employee. For 2015 and 2016, you can contribute up to $ 18,000 or 100 percent of your compensation or earned income (24,000 if you are 50 or more $). As your own boss, you can contribute another 25 percent of your salary or income earned.
You and your spouse can each be able to contribute up to $ 53,000 per year (plus an additional amount of $ 6.500 per year if 50 or older at the end of the year).
A Solo 401 (k) plan may have higher administrative costs than other choices. You might be able to borrow, if your plan is in place to allow it.
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