401k And IRA

There is certainly more to being your own boss than not being answerable to anybody, that is for sure. One thing is: you can start your own Self Employed Retirement Plan and, in all likelihood, put aside more every year than you could doing work for someone else for the rest of your life.

SEP’s or SEP-IRA’s, also called Simplified Employee Pensions, are generic retirement plans which make it possible for you to make a contribution besides deducting up to 20% of your self-employment income. But, the percentages can vary every year, so lower amounts (or nothing at all) can be contributed when you turn out to be starved for cash. The maximum amount that can be contributed is currently $46,000.

SEP’s are good for procrastinators, the reason being that they can be activated even as late as up to the due date on an extension of your tax return filing, and you can file for more than one extension (which most people do not know about). SEP’s are comparatively easier to establish and administer vis-à-vis Keogh pension and profit-sharing plans. It requires only minutes to get one started, normally with no charge, with a bank, brokerage firm or insurance company. No annual government reports are needed, and ongoing expenses related to administration are nil. The main thing is even if they allow much bigger contributions; SEP’s are as simple as the deductible IRA’s.

Keogh defined-benefit pension plans are designed to deliver a targeted annual retirement advantage to the retiree, which can be as high as $130,000. But each and every year, your contributions have to be calculated on an actuarial basis. So, the exact contribution limit will depend on things such as: amount of income, how many years until you retire, target benefits, and predicted returns on investments.

Have you decided to set up a SEP or Keogh plan? In the true American tradition of avarice, you still want more retirement tax breaks. Excellent! Then have a good look at the new Roth IRA’s that became available in the year 1998. Contributions are not deductible, though earnings develop tax-free; besides, you can withdraw your money that includes earnings sooner or later. While the IRA (Individual Retirement Account) is deductible, it is a poor boy in comparison to other types of plans for the self-employed, you need to learn a key point for sure: beginning back in 1998, if you implemented a SEP or Keogh plan, although a qualified retirement plan may not cover your spouse, s/he can expedite a deductible IRA contribution of up to $2,000, provided the family AGI is below $150,000. And if your business has employees, a SEP has to cover them as well. It means you'll have to make contributions that don't just do well for yourself, because all employee SEP contributions are immediately 100% vested.

A good self employed retirement plan is certainly a great thing. Choose the one that best suits your needs and have a good life after retiring. No need to depend on your family and children to take care of your many needs when you have this financial tool in your arsenal

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