When you work for yourself as an entrepreneur, you won’t enjoy the same security as working for a big company that offers you a set retirement and pension plan. You carry your own future on your shoulders and with that comes certain responsibilities. It can be all too easy to let those responsibilities fall through the cracks, but if you only think in the short-term, you’re doing your future self a major disservice. Here’s how you can plan for your future as a self-employed entrepreneur.
Know where you stand with tax
It can be difficult to know exactly how much you should pay yourself, something that’s nearly impossible if you barely do your own accountancy work. You need to regiment your accounting so you know exactly what’s going in, what’s going out and how much the government is taking or is entitled to take. It is well worth going to an accountant, showing them how you do both your business and personal taxes, and asking them to look for inefficiencies. When you have a highly efficient tax system, you won’t be spending as much on taxation that somebody in your situation is not explicitly due to pay, which means you’ll have more to save.
If you have a wealth manager and pay for investment administration, be sure to be clear on how your personal savings interact with tax. There are plenty of tax-free investment opportunities that you can think about that can help you to structure your future finances. If you haven’t considered investment administration, read this article to find out what is investment administration and consider whether that’s something that’s suitable for you at this current juncture of your life.
Look into either IRAs or 401ks if you’re not having your wealth managed
A Roth IRA is an IRA that often suits self-employed people and entrepreneurs as it gives you a more flexible option compared to traditional accounts. Normal retirement accounts penalize you if you access them before you’re 59 and a half, but with a Roth IRA, you can access it whenever you feel the need. However, that which you can withdraw can only come from the contributions you have put in, not from the earnings that you have accumulated from market gains. If you withdraw these earnings you might need to pay a penalty, but can avoid this in certain circumstances. The maximum contribution to a Roth is $6k annually.
401ks allow for more savings than IRAs and allow you to contribute $19,500 when you’re under 50. You can save more money with a 401k because you’re both a worker and the owner of the company, which means you can start to save a lot more than other plans would let you. You have to set this up by the end of the year, December 31.
If you want a last-minute retirement plan, you should look at setting up a SEP-IRA, which will allow you to contribute a certain amount immediately regardless of the tax year, meaning you don’t need to hold-off on contributing to a retirement fund because you’ve missed a deadline.