The number of self-employed Americans is expected to rise to nearly 42 million people this year. Being your own boss comes with a number of unique challenges. While you have more flexibility as a business owner, you still have to remain productive to turn a profit. One of the main concerns you should have as a self-employed individual is planning for your retirement.
Since you don’t have an employer looking out for your best interests when it comes to retirement savings, you will need to take the bull by the horns yourself. The longer you wait to get a game plan in place for your retirement, the harder it will be to live out your golden years comfortably. Read below for some helpful tips on how to set up your own retirement.
1. Get to Know Simple IRA Contribution Limits
With all of the self-employment retirement plans on the market, selecting the right one will require some time and research. If you are looking for a retirement plan that is easy to manage, then a simple IRA is a great option. While these plans are easier to manage, there are some restrictions you need to know about.
One of the main things you need to realize about most retirement plans for the self-employed is that the government puts a cap on how much can be contributed each year. These numbers change frequently, which is why you need to think about consulting with an accountant. They will have in-depth knowledge of the tax code and can help you avoid penalties in regard to your retirement plan.
2. Make Automatic Monthly Contributions
The biggest problem most business owners have is finding a way to put back enough money for their retirement plan each year. If you have recently left a job working for a company and are now on your own, you may have the opportunity to roll your 401k into a Roth IRA. Before making this decision, learning about the advantages and disadvantages of this rollover is important. Regardless of what financial instrument you use to save for retirement, you still have to put money into it.
The best way to avoid letting payments towards your retirement lapse is by setting up automatic drafts. With these drafts, you don’t even have to think about putting money into your retirement account. These automatic drafts also make retirement investment easier, which means there is no reason not to use it.
3. Find Ways to Deduct More On Your Taxes
As a small business owner, you need to get used to paying into the IRS each year. Self-employment taxes are quite high, which is why your main goal needs to be maximizing your tax deductions. Having a SEP IRA or a SIMPLE IRA can help you get a great deduction on your taxes. These are considered pretax retirement plans, which means you can deduct all of the money you put into them from your annual taxable income.
The biggest mistake some business owners make is trying to handle their own taxes. If you have limited experience with the business tax code, then you are bound to make serious mistakes. These mistakes will cost you lots of money and may even get your audited by the IRS. Instead of dealing with the stress of DIY tax preparation, hiring an experienced accountant is your best course of action.
It’s Time to Get to Work
Now that you know more about saving for your retirement, it is time to get a plan in place. With the help of an experienced accountant, you can figure out how to get the right plan in place.