By Kerry Hannon
If you aren’t comfortable doing it yourself, you might opt to hire a financial adviser to guide you Even though I have a grasp of personal finance, my husband (who is also self-employed) and I work with a financial planner who helps us to regularly do the practical and soul-searching work to estimate our savings and retirement income needs and to envision the life we’d like to lead in our later years.
I recommend one with the Certified Financial Planner (CFP) designation. A few searchable databases: the National Association of Personal Financial Advisors, The Garrett Planning Network, the Financial Planning Association and the Certified Financial Planner Board of Standards.
That process has become our safety net in case our world shifts. “You need to have a Plan B in case you’re forced into retirement sooner than expected,” Collinson said. “Only 31% of the self-employed in our report have a backup plan in the event they are unable to work before their planned retirement.”
4 retirement accounts for self-employed workers
I agree wholeheartedly with Collinson. Retirement savings is nonnegotiable. These retirement accounts are available at most mutual-fund companies and brokerage firms. You can set one up online and then contribute via an automatic funds transfer from your checking or saving account.
You can put as much as $6,000 in 2019 (plus an additional $1,000 if you’re 50 or older) into a traditional or Roth IRA. With a traditional IRA, your contributions are tax-deductible, and the growth is tax-deferred. But if you have a spouse covered by a plan, income limits may apply; for more details, check the IRS website .
With a Roth IRA, your contributions are not tax-deductible, but your money grows tax-free, and you’ll pay no taxes on your distributions as long as you follow the withdrawal rules. (Generally, you must have held the account for five years and be 59½ or older.) Income limits for Roth IRAs : If you are married filing jointly, you must have modified adjusted gross incomes below $193,000 this year to make a full contribution. Single taxpayers must have a modified gross income below $122,000 to qualify.
A simplified employee pension or SEP IRA is a tax-deductible retirement plan , if you’re a single employee. For 2019 tax returns, you can contribute up to 25 percent of your compensation or $56,000.
A one-participant or solo 401(k) is a retirement plan for self-employed people without employees (a spouse is an exception). This year, you can set aside, pretax, up to 25 percent of your pay, but your total contribution can’t exceed $56,000.
Of course, there’s nothing wrong with aiming to work past your 60s and into your 70s. I certainly do. That makes it possible to add to retirement accounts and to sidestep tapping into them for living expenses. That’s the safety net.