The ultimate guide to retirement planning for the self-employed

Being self-employed comes with a certain measure of freedom and flexibility. However, this doesn’t mean that you should skip out on saving for retirement. While being an entrepreneur is great, it leaves you in charge of your own retirement plan. It is, therefore, important that you take the time and initiative to set up and fund a tax-favoured retirement account. By so doing, you’ll not only make your financial future secure but also save a lot of taxes.

Here’s how self-employed small-business owners can save for retirement:

1. Know Your Options

There are so many retirement plan options available to self-employed people. The main ones are the Solo 401(k), which is designed for business owners who do not have employees and the SEP IRA and the SIMPLE IRA, ideal for entrepreneurs who have employees.

2. Understand Contribution Limits

Understanding your contribution limits and the math behind it can help max out your savings. It can also help you avoid looming tax increases as excess contributions to a plan are subject to a pension tax. Generally speaking, there’s one limit that applies to most contribution plans, and it goes up once you reach the age of 50.

While the limits are indexed periodically by the IRS, calculating the amount of money you are allowed to contribute each year can be tricky. A certified financial advisor can help you with the calculations.

3. Go Roth

The Roth IRA is a great plan for those who are starting to save for retirement or save less than $5,500 a year. It has no special filing requirements, and you can use it whether or not you have employees. The plan does not offer an up-front tax break, but the savings not only grow tax-deferred, but withdrawals in retirement are also tax-free.

4. Understand How Social Security Works

Social Security can be a valuable part of your retirement plan. It is financed with self-employment taxes and provides not just retirement income but also a host of other insurance programs. This self-supporting federal program offers four benefits: retirement benefits, disability insurance; Medicare provides both hospital and medical insurance for people over 65. In contrast, survivor’s benefits is a form of life insurance that provides payment to your beneficiaries in the event of your terminal illness or death. It can even be sold if you’re certain you no longer need it. This content explains the process well.

5. Don’t Quit Your Day Job

Income from your day job can help top off your retirement savings and support your desired lifestyle in retirement. Combined with Social Security benefits, investment income, and income from other sources, you’ll be able to achieve and maintain financial freedom once you are retired.

6. Maximize Your Tax Deductions

Self-employed seniors have some unique tax breaks that they can take advantage of. These include standard deductions, the IRS’s elderly tax credit, and taxes on medical and dental expenses, retirement savings accounts, business expenses, and investment expenses.

7. Try a Defined Benefit Plan

A defined benefit plan is a great choice. If you have a high income and want to contribute a lot for retirement, you can contribute to an individual 401(k) Plan, SEP or SIMPLE IRA. With this plan, you are required to have a third-party administrator or actuary who can help determine the amount and timing of your contributions.

8. Borrow from Your 401(k)

When you need cash for a financial emergency such as personal bankruptcy, a loan from your 401(k) probably is one of the first places you should look. The 401(k) is an attractive source for short-term loans as it is a quick, simple and low-cost way to get the cash you need.

While saving for retirement can be a challenge for the self-employed, there are several things you can do to fund your retirement. Just follow these eight simple tips, and you’ll be on your way to a secure financial future.