I'm a self-employed independent contractor. What would you recommend I do about retirement savings?
Answers | 2
Congratulations on recognizing the importance of saving for your retirement! Surveys suggest many people aren't doing enough of that, so good for you that you're thinking about getting started. To answer your question, I would recommend you get started as soon as possible!
As a self employed independent contractor, you have lots of options on how you can start saving for your retirement, many of which can provide valuable tax benefits. Which approach would be best for you will depend on several things, but a good start is to figure out how much you can afford (or need!) to save every year.
If you think you can't afford (or don't need) to set aside more than $5500 this year, then you may want to look into a regular or ROTH IRA. If you can afford (or need) to save more than that, starting a SEP IRA could allow you to contribute up to $53,000 per year. If you can save a little more than that, a solo 401(k) with a profit sharing feature might be the way to go. Finally, the calculations are more complicated, but if you want to set aside even more than that, you could set up a "defined benefit" plan. This is basically setting up a pension for yourself.
There are pros and cons to each of these strategies, and I don't know enough about your situation to recommend one over another, but hopefully this gives you some ideas on where to start doing some additional research.
Again, congratulations on getting started. Your "future self" will be happy you did!
Being self-employed does give you leverage when deciding which one is in your best interest.
Many of our self-employed folks prefer a self-directed retirement plan. If you chose a 401(k) plan- take a look at your annual 404(a)(5) participant fee disclosure form. http://www.dol.gov/ebsa/newsroom/fsparticipantfeerule.html
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