I work for a company that does not offer a retirement plan or a 401k I can contribute to. What is the best way I can set up my own plan?

Asked by Heather

4 Answers

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Answered by Paul Carag, Financial Adviser in Renton, WA
Hi Heather - the great thing about your situation is that you can now proactively learn the many options available to you. The first thing I'd want to know is how old you are and what your retirement goals are so I can give you more detailed advice. However, I would always explore as many tax-favored (tax-deferred & tax-free) options as possible. That being said, you can take advantage of cash value life insurance, which would do several things at once - allow you to earn at a guaranteed minimum interest crediting rate as well as dividends, allow you access to those same funds via policy loans to handle emergencies, debt reduction, investment opportunities at any time and well before you retire (you cannot access the funds in a traditional retirement account as easily nor can you get to much of it before 59 1/2), as well as provide permanent death protection for your family that won't end if you switch jobs. There is also a Roth IRA you can set up - this is a post-tax vehicle as well albeit without the guaranteed rate of return and limitations on annual contributions but also a good tool to use. Finally there are annuities as well which also offer guarantees and lifetime income opportunities therein. Of course, you can also invest in the stock market but not only are there not guarantees but you can lose your money there. It really depends on what you're looking for and what you're willing to learn. Let me know how I can help you more. Best wishes. | 09.13.15 @ 00:05
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$commenter.renderDisplayableName() — {comment} | 12.08.16 @ 02:05
Answered by Dennis Gibb, Financial Adviser in Redmond, WA
Hi Heather, There are a number of options open to you. First are the IRAs ( traditional, Roth, SEP). The traditional and the SEP allow you to contribute money which is deductible from your taxes. The money has to stay in the account until you are at least 59.5 years. If you take it out before then there are penalties. While the money is in the plan it will grow tax free, when you take it out you will be taxed. The Roth is allows you to make a contribute but you can't deduct it from your taxes ( we call that after tax money) it has the same rules as the traditional IRA except that when you take the money out it is tax free. The IRA's have a contribution limits based on age.
The SEP IRA (SEP means Simplified Employee Pension) which allows you to contribute up to 25% of your earnings from self employment up to a maximum of $53,000 in 2015.
All the IRAs are easy to setup and manage.
Having the money in a IRA is first decision the next one is what to do with the money. This depends a lot on age and a few other factors so it is a decision that can be made at the time you set up the IRA.

There also are 401k plans for the self employed which have different rules.

You have a lot of options, which one is right for you should be determined in consultation with a financial advisor who is a fiduciary pledged and required to put your interests first.

Best Regards,

| 09.15.15 @ 19:19
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$commenter.renderDisplayableName() — {comment} | 12.08.16 @ 02:05
Answered by Dave Bradley, Investment Manager (Financial Advisor) in North Charleston, SC
Hey Heather.
There are many choices. Perhaps, a better question is what do you want the plan to do for you? In other words, what is your MARR (Minimally Acceptable Rate of return)?

On investing being a business owner and not a consumer offers many advantages. Our folks love the higher returns with lower risk using our strategies.

Here are some links:
IRA & Roth
https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits

Simple (Savings Incentive Match Plan for Employees)-IRA
https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-SIMPLE-IRA-Contribution-Limits

SEP (Simplified Employee Pension)-IRA
https://www.irs.gov/Retirement-Plans/Choosing-a-Retirement-Plan:-SEP

Traditional, ROTH, & Simple 401K
https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-401k-and-Profit-Sharing-Plan-Contribution-Limits

PSP (Profit Sharing Plan)& KEOGH
https://www.irs.gov/Retirement-Plans/Choosing-a-Retirement-Plan-Profit-Sharing-Plan

DBP (Defined Benefit Plan)
https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-Defined-Benefit-Plan-Benefit-Limits | 03.17.16 @ 20:10
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$commenter.renderDisplayableName() — {comment} | 12.08.16 @ 02:05
All of the guidance provided thus far is great. I'll take it one step further. BEFORE you start saving for retirement, take a strong look at your current situation.

One of the first questions I'll ask is about your debt-load...how much debt are you carrying? Priority number one is paying off your highest-interest debt first, and subsequently paying off the rest of your debt in order of highest interest rates (that interest you pay will KILL your retirement).

Assuming no debt, if you don't already have a liquid emergency fund established, this should be priority number two (I like between 9 to 12 months' worth of living expenses). And it becomes much easier to get to the 9-12 months' worth mark once you roll the dollars you had going toward debt into your emergency fund. For this money, I like money market accounts, as they pay you a slightly higher interest rate than a typical savings account.

Once your debt is paid off and you have an emergency fund established, only then should you start to invest for retirement. Take the money you had going toward debt and toward building your emergency fund and put it to work for you. Not knowing your time horizon for retirement, concentrate on accumulation products WITHOUT exposing your money to risk. Depending on your age, you may not be able to afford any market losses, especially when there are safe-money strategies that will allow for a reasonable rate of return, typically 4% to 8%, with ZERO risk of losing principal. If you haven't read Patrick Kelly's book "The Retirement Miracle" I suggest you do, and incorporate that as one of your strategies.

I love the Roth IRA, but depending on how much you make (unless you're a Federal Employee), the maximum contribution allowed is rather limiting. I also love the idea of starting a home-based business, not only for the tax relief, but also for the ability to open a SEP. But if you can learn to live below your means and adjust your budget to do so, saving 15% to 20% of your annual salary will allow you to catch up rather quickly. If you can do more, than do more.

I'd be happy to answer any questions you might have throughout the process...just reach out.

Mike Zaino
www.TZGFinancial.com | 04.02.16 @ 16:27
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$commenter.renderDisplayableName() — {comment} | 12.08.16 @ 02:05
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