From managing your time and establishing a home office to growing your client base and earning profits, it is easy to see the challenges of being self-employed. Not only will you have these physical and emotional restraints, but the lack of a company's retirement plan can also make saving a bit stressful. Fortunately, saving for retirement when you are self-employed is possible. If you are the part of the 14.6 million people who are self-employed, consider using one or more of these surprising solutions to save for your retirement.
If you were a traditional employee of a company, you would most likely be offered the opportunity to invest in a 401k plan. As a self-employed worker, you are the company, so you will need to provide your own type of investment.
Contributing to a ROTH IRA is your best option for saving for retirement as a self-employed individual. To be eligible to make regular payments into the ROTH IRA, you must meet certain criteria. If your MAGI, or modified adjustable gross income, is within a certain range, you may not be able to contribute the full contribution amount.
While surprising for many to learn, small business owners and self-employed individuals are also entitled to Social Security benefits. Traditional employees will pay half of their Social Security benefits out of their paychecks while their employer pays the other half. Unfortunately, self-employed individuals will need to pay the 15.3 percent on their own, without help from an employer. The amount you will pay towards your Social Security benefits is determined by your total self-employment income.
To determine the total amount of self-employment taxes you will pay, subtract your business expenses from your business income for the year. If your business expenses are less than your income, the difference is considered a net profit. However, if expenses are more than your income, the difference is considered a loss.
Contributing money towards a 401K offered through traditional employment is simple for many people, since it comes directly out of paychecks. Unfortunately, setting aside the cash to invest into your ROTH IRA is a bit more difficult.
Consider setting up an automatic deduction at the same time each month. This deduction will come directly out of your checking account and go toward your retirement account.
Although challenging, saving for your future while self-employed is possible. Using these solutions, you can put your self-employment income towards your retirement goals.