Self-Employed Retirement Plans

Overview

There are a growing number of self-employed people working all over the world. They choose to do this instead of working for companies as employees. There are many benefits of being self-employed, but you should still prepare for your retirement. There are typically four retirement plans that are considered by self-employed workers including Individual 401k, SEP IRA, Defined Benefit Plan and Simple IRA.

How It Works

The primary factors that determine which type of retirement plan is best for you are: age at the time of setting up a plan, annual income, projected income over time, how much you feel you can contribute annually to your chosen retirement plan, and whether having access to a loan from your plan later is a consideration. The benefits to a self-employed worker are different depending on these factors.

Let's review each of the types of self-employed retirement plans now:

• SEP IRA - A Simplified Employee Pension Plan (SEP IRA) is a retirement plan specially designed for self-employed people. There is a maximum contribution limit each year and it varies according to the current law. The contribution limit for the year 2009 is $49,000. Money contributed to the SEP IRA grow tax free and is subjected to income tax when you withdraw at the age 59 ½. You will incur 10% IRS penalty for early withdrawal.
• Individual 401k - An Individual 401K is also referred a Single (k) and Self Employed 401k. It allows loans to be taken against them (after they have been funded for a while) and therefore differs from other self-employed retirement plans. Another major benefit offered by this plan is that contributions can be made according to the individual's income level. This retirement plan provides many benefits to the self-employees and small business owners.
• Defined Benefit Plans - For people who are 45 or above, the Defined Benefit Plan is the ideal choice. It allows you to make contributions that are tax deductible and produce a considerable retirement fund in a few years. Contributions can exceed $100,000 per year depending on your age and income level. This approach also allows business owners to shelter larger portions of their income.
• Simple IRA - The Simple IRA Plan lets self-employees contribute to the traditional Individual Retirement Arrangements (IRAs). There are maximum contribution limits of $10,000 or $13,000 (if age 50+) that can be up to 100% of the income. This allows for a more significant contribution, even at a lower income level. It is perfect as a start-up retirement savings plan. If you desire higher levels of contribution, you should consider an Individual 401k.

Benefits

Everyone needs some retirement income and setting up a self-employed retirement plan ensures peace-of-mind for people who do not work for a company that might otherwise provide a retirement plan option.

Cost/Pricing

Setting aside a portion of income is the cost involved in Self-Employed Retirement Plans. Some administrative fees are also associated with some of these plans. They are usually managed by a brokerage house or another entity that collects fees to manage the account in which you have invested the money in the chosen plan.

Timing

As the proverb says "the sooner the better," if you start a retirement plan earlier, then you will be able to accumulate enough funds to lead a peaceful life after retirement. It's as simple as: the more money you save now, the more you'll have later.

Companies/Industries

Various brokerage houses administer your plans. They have the authority to buy and sell purchase securities and stocks. Review their operations and features to decide which entity is best to hold your retirement plan. Prime Manhattan Realty is one brokerage firm that was ranked among the top best in New York. It's worth researching the brokerage houses in your area to obtain the best benefits from your retirement plan.