Investing in a SEP IRA or Solo 401k is a great way for entrepreneurs to save money for their futures while saving on taxes today
Being self-employed means you have a lot of stuff on your plate, including planning your investment strategy for retirement. While this might sound overwhelming and difficult, don’t let your fear of the unknown put off your future planning any longer- because it’s not nearly as painful as it sounds.
There are various ways to save for retirement on your own, i.e. outside of an account that’s set up by an employer (like 401k’s and 403b’s) and the two biggies for people who are self-employed are SEP IRA’s and Solo 401k’s. So, what are the differences, and what’s best for you?
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Wait... there's still time to save on your 2019 tax bill?!
As a former financial advisor, I can’t help but feel like I have a leg-up on the financial side of this entrepreneur game. Now, I’m by no means “rich”, but I do understand the way to get there, and have faith in the financial processes that a lot of people, unfortunately, never understand.
One of the worst things about working for yourself, especially when you are first starting out, is trying to understand the tax and investing side. It seems like these things are almost overly complicated on purpose, designed to leave you stressed and in the dark. Stressed enough to just hand it over to someone else to figure out for a few hundred (or thousand) dollars. Or worse… to ignore it. 
What's the difference between a Traditional IRA and Roth IRA? And how do you decide which one to use?
This question is one that doesn’t have a one-size-fits-all answer, and it’s likely that you will be better off if you figure out how to use both of these accounts throughout your life.
Let’s start at the beginning, you might be asking, "What the firetruck is an IRA?" IRA stands for an Individual Retirement Account. Broken down further, the individual aspect means that an IRA will never, ever, be in more than one person’s name (with the exception of an inherited account, which will still have the deceased person in the title and the account owner would be listed like ‘Marsha Smith, Beneficiary of Marlene Smith’). There is no such thing as a joint IRA, which is why it’s a good idea to have retirement assets in both spouses names. If you are many years from retirement age, DON’T tune this out! The further you are from retirement, the easier it is to save, and accumulate wealth. Plus, having a fat retirement account is cool af. Need more convincing? How about a quick game of 'Would You Rather?...' 
Even if retirement is a few decades away for you, there's a chance you're feeling behind on your future savings!
Have you ever felt behind on your savings? Or a better question might be; have you ever felt on top of them?!
If you're feeling stretched in areas like building up savings and paying off debt, chances are you have felt behind on your retirement savings too. A few years ago, as a 20-something millennial that was aggressively paying off student loans, I didn't know that I also should have already started saving for retirement. I thought I knew about retirement, that it was a time in your life when you were older and could stop working. To me, retirement was an age. I now realize that this is a misconception, and that thinking this way is causing a big problem... 
The extension for 2019 taxes also impacts IRA contributions, which means you could be in an extended “sweet spot” for catching up on savings.
Saving for retirement is a hefty topic, one that many like to put off until it is arguably “too late”. As the saying goes ‘the best time to plant a tree was yesterday. The second best time is today”. This saying applies to saving for retirement perfectly. When I was a financial advisor and working with retirees on a daily basis, one thing was said again and again... “I wish I had known more about investing when I was younger.” Why do so many people say that? Well, once you have had money invested for a while, you truly understand the magic of compounding interest. And what’s compounding interest’s best friend? Time. Time is the reason a saver who starts investing $500 a month from age 20 (and earns an average of 7%) could retire with over $1.2 million. But if they wait until age 30? The ending balance is less than $600k. You need two things to grow wealth, money and time. You only need to have a lot of one of those things.
So far, 2020 has been a wild year for retirement savers. If you aren’t saving yet, you might find this the perfect time to start... 
What you should consider before spending all of your stimulus check
The middle of April 2020 is certainly... not how it normally is. April 15th usually marks the dreaded “Tax Day”, but this year we are replacing our fear of taxes with a fear of contracting COVID-19. Taxes are taking a backseat until July, and there are some other new and monetarily stimulating things going on, like surprise checks and paused student loan payments. If you woke up to an extra one or two thousand bucks in your account this week, you might be wondering “what should I do with this?” and “are there strings attached?”. Before you swipe your card on that brand new flat-screen TV, let's take a look at the fine print, and consider some good places to put that stimulus moolah.
It's easy to see the importance of a healthy emergency fund, especially in this uncertain time as the corona virus pandemic continues. But where should you start?
Let’s break it down.
What exactly is an emergency fund?
I’ll give you my definition, but I think it’s also important for you to create a definition of your own.
An emergency fund is money that you have saved and set aside specifically for emergencies. This should be held in cash for liquidity reasons, and easy to access if it’s needed on short notice. Now, I don’t mean in literal stacks of cash tucked under your mattress, I just mean it shouldn't be invested in stocks or real estate, and it’s not in some weird, faraway account that will take 7 days and your first-born child to transfer into your checking account. The best place for your emergency fund is a savings account or a high-yield savings account. But… what constitutes an emergency? This is something you get to decide, and I suggest you know what emergencies look like for you so you can both: a). Have self-discipline and not dip into your savings unnecessarily for stuff that isn’t actually an emergency and b). Not be hard on yourself when you DO have to dip into your emergency fund... 
Are you hearing a lot of what you "should" be doing with the current market climate, but actually have no idea of how you even start investing? Look no further for a simplified breakdown of how to open your first investment account.
The 5 Steps to Start Investing
If you’re reading this, chances are you are feeling slightly overwhelmed about your current, nonexistent investment portfolio. The fancy financial verbiage probably makes you want to cover your ears and carry on with life, not worrying about the state of your future retirement years. I get it, I’ve been there. Up until age 25, I thought I had plenty of time before thinking about retirement. Surely I don’t have to start thinking about that until I’m 50 or so. I knew I should be saving and chipping away at my student loans, but retirement?! Not even on my radar. That is, until I got a job in the financial industry, and was face-to-face with its importance on a daily basis. I quickly learned that retirement isn’t something you should wait to save for, in fact, the opposite is true. The earlier you start investing for your future, the easier it is to become a millionaire. Or a multi-millionaire. But then running the numbers of waiting until you’re older and in your 40’s and 50’s? You’ll need to put a LOT more money away to reach a million. Okay, you get it- it’s important. BUT HOW DO YOU START?! No need to yell! I’ll show you right now, in 5, easy steps. 
What should you be doing when everyone is panicking about the market going down?
Your ability to stick it out through market swings will vary, depending on where you are in life. If you are retired and currently living off of your investments, you will have a different course of action for down markets. But if you are currently investing for a goal that is years or decades away, like retirement is for Gen X-er's, Millennials, and Zoomers, a down market is a G R E A T time to be socking away money and growing your investment portfolio!
So, should you be putting your money into the stock market when everything is down, and people are in a frenzy?  Financial goals that you can achieve in 20 minutes or less that will have you feeling good for the rest of the year.The start of a new year is always exciting, full of rejuvenation, goal-setting, and what feels like an opportunity for big changes that are much-needed in your chaotic life…
...and then the champagne wears off, and January 1st starts with a hangover instead of a gym session. Or you might have found yourself in the mindset of being completely over failed resolutions, that you didn’t even bother setting any goals for yourself this year. And hey, that’s okay. But, just because we are into the second week of January doesn’t mean you can’t make some small adjustments to your life that can set this decade up for success. Nobody is perfect, and creating longstanding habits is hard. The trick is to implement small, easy tweaks that will stick, not giant, life-changing goals. Another goal-setting tip is to avoid vague resolutions that won’t really get you anywhere. Instead of “I’m going to be better with my money in 2020” or “I’m going to save more”, try resolutions that are specific and actionable, and ones that will help you throughout the year with little to no ongoing effort. The following three goals are just that- things that are easy to implement yet will leave you feeling good about yourself all year long. |
Alicia DionHi, I'm Alicia- this blog is a way for me to share all of the helpful things I've learned from working in the finance industry, important money things that I probably wouldn't have learned otherwise, and things everyone should know about. Archives
April 2020
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