After years of hustle, late nights and early mornings, retirement is the once chance to finally relax and enjoy life after years of working hard. It is an opportunity to travel and explore new places. Whatever the reason, retirement can be a great time to enjoy life and pursue new interests.
Of course, retirement does not come without its challenges and limitations, especially for small business owners and self-employed individuals. However, with a little planning and some discipline, it is possible to save for retirement successfully. According to Bill Schantz of Mid Atlantic Financial, LLC, there are several retirement plans available, and it is important to choose the one that best suits your needs. Here are some of the most popular options
A traditional IRA is a retirement savings account that allows you to set aside money for retirement on a tax-deferred basis. This means you do not have to pay taxes on the money you contribute to your IRA until you withdraw it in retirement. Traditional IRAs are typically best for people who expect to be in a lower tax bracket in retirement than they are currently.
A Roth IRA is similar to a traditional IRA, but the contributions are made after-tax. This means that you will pay taxes on the money you contribute to your Roth IRA now, but you will not have to pay taxes on the money when you withdraw it in retirement. Roth IRAs are typically best for people who expect to be in the same or higher tax bracket in retirement as they are currently.
Bill Schantz explains that SEP IRA is a retirement savings account available to self-employed individuals and small business owners. Contributions to a SEP IRA are made on a tax-deferred basis, and the money in the account grows tax-deferred until it is withdrawn in retirement.
Many employers offer a 401(k) retirement savings plan. Employees can have a portion of their paycheck automatically deposited into their 401(k) account. The money in a 401(k) account grows tax-deferred, and employees are typically able to invest in various investment options. 401(k) plans are often matched by employers, meaning that the employer will match a certain percentage of the employee’s contribution.
The Solo 401(k) is a great retirement plan for self-employed individuals and small business owners with no employees. This type of 401(k) is also referred to as an Individual 401(k), One-Participant 401(k), or Self-Employed 401(k). A Solo 401(k) allows you to contribute as both an employer and an employee. As the employer, you can contribute up to 25% of your net self-employment income (up to $56,000 in 2018). And as an employee, you can contribute up to $18,500 ($24,500 if you’re 50 or older).
A 403(b) is a retirement savings plan available to public school employees, non-profit organizations, and certain government agencies. Like a 401(k), contributions to a 403(b) are made on a tax-deferred basis, and the money in the account grows tax-deferred until it is withdrawn in retirement.
An annuity is a contract between you and an insurance company. You make payments to the insurance company, and in return, the insurance company agrees to make periodic payments to you, either for a specific period or for the rest of your life. Annuities can be used to fund retirement, providing a guaranteed income stream in retirement.
Bill Schantz believes that thoroughly understanding these retirement plans can significantly speed up your saving process. These plans can help you save for retirement while providing some tax benefits. If you’re still unsure, ask your financial advisor to see which retirement plan makes the most sense for you and your business.