Working for a large company can have its perks, like a company car, health care plans and even a free lunch here and there. But if you're self-employed, you may not be accustomed to the same luxuries or a human resources department to assist you with any questions you have, especially about retirement. This means you need to find an alternative to set up one of these accounts, but there is no need to stress, as you can still apply for the same retirement plans that are offered to employees of large businesses. Here are a few tips to help you start a retirement account if you're self-employed:
Pick a plan
There are many plans you can choose from, but these are some of the most common options the IRS recommends for self-employed people:
- Simplified Employee Pension: This plan may be better if your business is a one-person show. You can still use it if you have employees, but you will need to contribute money for them as well. The maximum amount you can contribute for yourself is 25 percent of your net earnings. For 2014, the maximum amount allowed is $52,000.
- 401(k) plan: This plan is commonly offered to employees of a big business and designed for one person. This can work in your benefit because you don't have to worry about contributing any money for employees. With a 401(k), you're allowed to make a maximum contribution of 25 percent of your income and a salary deferral of $17,500 for 2014. An additional $5,500 can be contributed if you're 50 or older.
- Savings Incentive Match Plan for Employees: If you have less than 100 employees, a SIMPLE individual retirement account may be for you. You're allowed to contribute all the net earnings from your income to this plan. The maximum amount is $12,000 for 2014. This can still work if you have no employees, but if you do, you have to match up to 3 percent of their compensation.
Contribute part of your earnings to this fund
You can't start a retirement account if you don't have enough funds to contribute to it. Creating a budget may seem easy as it can come in handy to help you save up for your golden years. Look at your base salary and pick a percentage of it that you want to save for retirement. This can be any number, but Equifax recommends anywhere from 15 to 20 percent.
Plan for future health problems
These plans can be great, but you need to make sure you have a backup plan in case you or a loved one gets sick. You should think about what your health care costs will be, and there are some retirement plans that can help you with this. A health savings account is tax-deductible, and you can take out the funds to pay for medical and other health expenses.