Last Updated: January 15th, 2021
Are you self-employed and wondering about getting the best retirement plans to secure your future financially? Self-employment gives you a lifestyle free from the worries of official pressure as in the case of the average employees. It also provides you the independence to live your life as per your desire.
People feel worried about saving money for their retirement days. If you are looking for financial security, start planning for your retirement early. The article explains about the best retirement plans for self-employed professionals.
Plan Your Retirement To Secure Your Financial Life
1. Simplified Employee Pension (SEP)
Simplified Employee Pension SEP is one of the best-suited retirement plans for self-employed professionals. The plan has the least administrative burden with the minimum requirement of the official documentation. The least paper works make such professionals inclined to invest in SEP like plans.
To start, you need to go through the following list of procedures:-
Complete form 5305 SEP, Simplified Employee Pension, or even an IRS-approved prototype SEP plan. These are available with many mutual funds, banks, and other financial institutions.
Proceed through opening a SEP-IRA with any bank, or other financial organizations.
Setup the SEP plan and choose the tenure concerning the investment and profits.
2. Traditional or Roth IRA
Traditional or Roth IRA retirement plan is suited for the self-employed professionals having savings less than $6000 per year. In case you are likely to leave your job, going to start your own business, you can even go for the plan without any second thoughts.
You get an advantage in the tax deductions and get an independency to withdraw the funds without any tax. These are the individual plans and never expect you to be under a group of employees.
To get the plan, you can instantly open an IRA at any online brokerage within a few minutes, and get ready to go without any hassles.
One of the significant differences between a Traditional and Roth IRA is that in Traditional IRA is that the contributions which you are going to make for a particular year will be taxed-deductible. Whereas, in Roth IRA that you will not be taxed on your retirement withdrawals.
3. 401(K)
401(K) retirement plan is ideally suited for the self-employed individuals or the business owners with no employees working under them. Under the plan, you get an independency to contribute up to $56000 in the year 2019 with an additional amount of $6000 for the people having above 50 years.
The plan operates similar to the standard, employer-offered 401 (K). You are eligible to make the contributions pre-tax and the associated distributions after 591/2 years of age that are taxed.
To get the plan, you can approach the online brokers and open a solo 401 (K). Every single year, it is essential to file paperwork along with the IRS soon after reaching $250000 in the account.
4. Simple IRA
Simple IRA is ideally suited for the self-employed professionals executing larger businesses with over 100 employees. You are given financial independence to contribute up to $13000 in the year 2019.
Along with the same, you can go for the catch-up contribution of $3000 if the concerned person is 50 years or older. In case you are even contributing to an employer plan, the approximate of all the contributions cannot go over $19000 in any case.
As per the tax advantage, the contributions are deductible, but the distributions after retirement are taxed. The contributions done for the account of the employees are deductible in favor of the business expenses.
Move forward to the online brokers for opening the account with the same. It requires heavy paper works and documentation to initiate the procedures.
5. Defined Benefit Plan
Defined Benefit Plan ideally suits the self-employed persons earning a huge income and wants to save a lot from the hard-earned efforts lifetime. The plan provides financial stabilities, investment independencies, and assured benefits after reaching the age of retirement.
The contribution limit is calculated based on the benefits received during the age of retirement. It even counts the age of the individuals, along with the approximate amount of investment.
The contributions done on behalf of the persons are tax-deductible.
In case you execute business with several employees, you can go ahead with the plan by offering it to them and make contributions on their behalf.
The plan is available with limited online brokerages as the plan is minimal to get possible for all self-employed individual.
6. Pensions
The pensions are extremely easy to manage due to limited documentation and liabilities. The employers fund the pensions and issued to the retired employees every single month.
Moreover, with the advancement in the edge of digitization, the self-employed persons can even get the benefit of pensions with other available mediums. If you are a self-employed individual, you can even go-ahead for the pension plans made available by the insurance companies.
Moreover, you can even avail the government schemes related to pensions. You need to invest a small percentage of the amount under the plan. After reaching the age of retirement, you get eligible for getting the pension every single month based on the amount invested during the tenure.
7. Guaranteed Income Annuities
Guaranteed Income Annuities or GIAs are never offered to the employees by the employers, but the individuals are liable to buy the same with their income. Self-employed persons mostly prefer buying the same for increased flexibility, and maximum returns for their investment.
You are liable to trade a big lump sum at the age of retirement and purchase an instant annuity to receive a monthly payment throughout the life.
To buy the plan, you can go ahead with an after-tax strategy owing to the tax of your sole earnings. You can even prefer to purchase the plan within an IRA and receive an upfront tax deduction.
However, the complete annuity will be made taxable during the time of taking the withdrawals.
The article mentions the list of the best retirement plans for self-employed persons. Every single plan has individual protocols matching the requirements of the concerned individuals. You can go ahead with any of the above following your necessities and choose the best one to secure your retirement.
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