What are Self-Employed options to save for retirement without a 401(k)?
I am self-employed and trying to save for retirement. I make $40,000 a year. I have $150,000 in an IRA and contribute $6,500 to it a year. What else can I do to save for retirement without a 401(k)?
As a self-employed person you have the ability to start your own company retirement plan, which will unlock a lot of advanced financial planning techniques you can take advantage of. You actually have a lot of options including establishing your own Solo 401(k), SEP IRA, or SIMPLE 401(k).
Each has its own advantages depending on your individual tax, business strategy, and lifestyle circumstances. All of them, however, will allow you to put away far more than $6,500 toward your retirement.
If you are interested in starting your own retirement plan, my firm can help you set one up relatively cheaply. (These plans can become very expensive if set up through one of the large national companies). Before making any choices, I recommend reading this nonprofit guide on how to set up a 401(k).
Consider Changing Health Plans
Another option is to change your health plan to a high deductible health plan. This will give you access to a Health Savings Account (HSA), which can be extremely valuable to you. The plan contributions are tax deductible and funds can be withdrawn tax free for qualified expenses. Effectively, if you pay for medical expenses from other funds, the HSA becomes another retirement account.
Other Planning Considerations
As a business owner, you have a lot of other opportunities available to you, which proper financial advising can help you take advantage of. From cash flow strategies to debt management to investing, typical financial advice doesn’t always apply to business owners. A significant portion of the tax code is written for business owners, and you will want to ensure you benefit from any tax advantages available. Similarly, you have unique risks such as lawsuits, which should be planned for and managed.