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?
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?...'