Self employed What Are Your Retirement Saving Options

  
     
  By: Barry Milton  
 

We all need to save for retirement because none of us can avoid growing old. Most articles are written with the gainfully employed in mind, but what about the self-employed individual? Fortunately, there are plenty of options for you as well.


The first option to consider is the individual retirement account, better known as the “IRA.” There are two types that you will want to choose from. One is the traditional IRA. You can contribute up to $5,000 to it with pre-tax funds. This simply means you get to exclude the contributed amount from your income when determining the taxes you owe. The downside is the distributions from the traditional IRA are taxed as income when they are distributed after you retire.

The Roth IRA is your second choice. It works in a similar manner to the traditional IRA, but with one big difference. Instead of avoiding taxes when you make a contribution, you get to avoid them when you make a withdrawal after retiring. If you think the contributions will grow well, this can be an excellent option.

While either IRA is a good start, you will want to have additional retirement vehicles in place. The primary issue the contribution amount. You are limited to $5,000 a year with either type of IRA as of 2010, which isn’t going to add up to much very quickly. You will definitely want to supplement it.

Self-Employed Pension Plans, better known as SEPs, are one of my personal favorites. They are often discussed in the vein of being used by small businesses for their employees. Doesn’t this exclude you? Not at all. You are an employee. You can set up these plans and make larger contributions than you can with the IRA options. Even better, you can change the contribution amounts each month to reflect the changing conditions of your business. If you make a lot of money one year, you can make a bigger contribution. If you have a tough year or two like most of us have recently experienced, you can cut the contribution down to next to nothing.

The self-employed often get the short end of the stick in many ways. Retirement savings doesn’t have to be one. Make sure you know your options and start saving for the golden years today.
  
  Article Source: http://yourfinance.co.za   
     
 
About The Author
Barry Milton writes about financial planning for UFCAmerica.com.
 		  
     
 
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