Retirement saving tips for the self-employed

There are a variety of vehicles to consider


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The choice to become self-employed can be a fulfilling journey but it comes with many responsibilities. Entrepreneurs just starting out are in control of virtually every aspect of their business, which includes their retirement. If you are self-employed or thinking about making the leap, make sure you prioritize your own financial future. Begin by exploring retirement plan options available to you. 

If you are self-employed, you need to make retirement saving part of your routine. Although it may be challenging to determine what your salary is – and therefore what your retirement savings will be – make it a priority to set aside money each month. Even a modest amount can make a big difference in the total amount of your nest egg. Once your income is more consistent, consider increasing your contribution. 

There are a variety of retirement savings vehicles for self-employed individuals to consider. You can use one approach or a variety of vehicles to build your nest egg. Among the most popular savings options are: 

 • SEP-IRAs: A Simplified Employee Pension (SEP) IRA allows you to set aside as much as 25 percent of your net earnings from self-employment, up to $54,000 per year in 2017. It is easy to administer, requires minimal paperwork, and gives you the ability to build a significant pool of savings for retirement.

 • SIMPLE IRA: This is a fairly simple plan to establish for the self-employed or small business owners. You can contribute 100 percent of your net self-employment earnings up to $12,500 ($15,500 for those age 50 and older). As your own employer, you can also make a modest additional or matching contribution. 

 • Solo 401(k): As a business owner, you’re able to make contributions as both an employer and an employee. As the owner, you can contribute up to 100 percent of your net self-employment earnings on a pre-tax basis, up to $54,000 in 2017. You can save an additional $18,000 ($24,000 for those age 50 and older) in the plan. For the individual contribution, you have the option of making either pre-tax contributions, or saving after-tax dollars into a Roth 401(k) that offers benefits similar to a Roth IRA. A 401(k) has additional administrative requirements that don’t apply to some of the other savings options.

 • Individual Retirement Accounts: Another potential option is to maximize annual contributions to IRAs. Those under age 50 can save as much as $5,500 (or 100 percent of income, whichever is less) in an IRA. Those 50 and older can set aside an extra $1,000 above that limit. Contributions may be tax-deductible based on your income. Otherwise, you may have the option to save your after-tax dollars into a Roth IRA, if you qualify. Earnings accumulated in a Roth IRA have the potential to give you a tax-free income steam in retirement, when all conditions are met. 

Choosing which plan or combination of savings plans is right for you is a personal choice. No matter what options you choose, keep in mind that the best approach is the one that encourages you to create a secure financial future for yourself.

Bob Bonfiglio, a private wealth advisor and managing director with Rise Private Wealth Management, Bedford, can be contacted at 603-606-4255 or at bobbonfiglio.com.

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