RETIREMENT PLANS FOR SELF EMPLOYED (BEST RETIREMENT PLAN IN 2020) - YouTube

So you are self-employed and need the best retirement plan, but you're not sure which

type is best for you or where to start.

Watch this video.

I'm going to break down retirement plans for self-employed.

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Consider this video the cliff notes you need to your best retirement plan.

I'm gonna cover three types of retirement plans for self-employed.

And be sure to stay with me until the end of this video: I'm going to summarize the

plan, so you can choose the right one for you!

I am a CERTIFIED FINANCIAL PLANNER.

Before I became the owner of Clear Sky Wealth, I was self-employed.

As a self-employed person, I know that you need accurate advice quickly so you can make

strategic decisions, and concepts you can get your arms around very fast.

That's what I'm going to do for you in this video.

For over 13 years I've been working with our clients to help build their wealth and their

prosperity, especially for our self-employed clients.

Now let's take a look at the three types of retirement plans for self-employed:

The first one - 401k's

You may already know this...but what's important to know about 401k's for self-employed is

that they are called solo 401k or individual 401k.

Essentially what you are creating with a solo 401k is a perk of an employer sponsored plan,

like they do have at large companies or mid-size small businesses, but you're creating it for

you as a self-employed person.

it's called a 401k also known as an individual 401k.

Let's talk about some facts of the solo 401k: They are designed for businesses with no employees,

but if you have a spouse you and your spouse can contribute tot he 401k.

The total amount that you can contribute is $57,000 in 2020, and if you're over the age

of 50 you can contribute another $6,500.

There are set up and ongoing costs for maintaining these types of plans, and it's not the most

cost effective retirement plan.

It's not very flexible.

So we'll get into some more flexible plans as we get further in this video...

Many of my clients set up solo 401k's when their business is in a mature phase and they

have consistent income.

You'll want to set up a solo 401k when your business income is consistent because of the

ongoing maintenance and cost to the 401k plan.

If you are self-employed OR your income is inconsistent from your business I actually

don't recommend a solo 401k, because you need a retirement plan with more flexibility especially

in the early stages of business.

There's some alternatives, I'll get to those in this video.

Keep in mind if you are looking to open up a solo 401k for your side hustle business

AND you have a day job -- the $57,000 contributions limit applies to all plans.

So, in other words, if you have a 401k at your day job, fully fund that as much as possible,

and with your side hustle business there's another option....

I'm going to get to that in this video.

If you have employees, you may want to consider an employer-sponsored 401k, which is just

another fancy word for company 401k.

OR

You may want to consider a SEP IRA for you and your employees.

Let's get into those SEP IRA's...

The second type of retirement account for self-employed are SEP IRA's.

SEPIRA's are great because they are flexible.

That's one of the reasons why I really like them, but they also have a few more rules.

SEP IRA stands fro Simplified Employee Pension Individual Retirement Account.

And they are really ideal for small business owners with no employees, or very few, that

want to contribute up to $57,000 (which is the contribution limit for 2020) for themselves.

They also have to contribute to their employees accounts at a certain point.

We're going to get into that in just a minute.

Some of the perks of SEP IRA's are: They are easy to set up and administer.

They are cost effective, compared to 401k's And you don't have to contribute every single

year, making the SEP IRA one of the most flexible retirement plans for self-employed.

If you are newly self-employed or just starting out in business, and you have an employee

or two or three, you actually don't have to contribute to their SEP IRA until they have

worked for you for three of the previous five years AND they are also 21 years of age.

So those are some of the criteria for SEP IRA's.

Some of my clients are in the earlier stages of their business so income fluctuates from

year to year, or month to month, and the SEP IRA provides that flexibility as a business

owner that you need.

In the years that you don't contribute to your own SEP IRA, you don't have to contribute

to your employees that are eligible.

You actually don't have to fund your SEP IRA at all, if you don't want to.

That's the kind of flexibility that SEP IRA's have, and it gives business owners what they

need to be successful, and managing their cashflow, and making sure they don't feel

pressure to contribute to retirement funds.

I've talked a lot about perks of retirement plans, but I'd love to know the perks of for

you being a business owner or self-employed...

What are some of those perks?

Let me know if the comments below.

Okay here's a little bonus for you: For those of you that are working a day job

AND a side business, you can contribute to your 401k at work as well as a SEP IRA with

your 1099 income, W2 for your day job; 1099 income for your side business.

you can contribute to a SEP IRA with that side business income AND still contribute

to your 401k.

That's a little bonus for you and these retirement plans.

The third type of retirement plan for self-employed: IRA's,

Individual Retirement Accounts.

They are very well know, some of the most well known type of retirement accounts out

there... but I wanted to include them in this video

because they are a great alternative when income is varied form year-to-year, or month-to-month,

OR in years when you have lower profits.

IRA's...they sometimes just work.

A quick recap on IRA's: They allow individual's to put pre-tax income(money

you haven't paid taxes on yet,) you invest it and the money has the opportunity to grow

tax-deferred.

Okay!

Let's look at some strategic ways that IRA can be used instead of a SEP IRA...

Let's say you have a SEP IRA and you have employees as well, and you don't want to contribute

this year.

You want to reinvest money into the business, maybe profits were lower, or you just need

more cash because a kid is going to college.

Any of those things can impact your ability to fund the SEP IRA, so here's some alternatives:

You don't have to contribute to a SEP IRA that year, and you aren't required to contribute

to your employee's SEP account if you didn't contribute to your own, but you can still

make a contribution to your IRA, your individual retirement account.

Instead of putting money in a SEP you can contribute to your IRA, and you don't have

to close your SEP IRA.

You can keep it open and fund it in future years....super cool right!

This is just one way to use an IRA and a SEP IRA throughout your retirement planning years.

This isn't so much the case with IRA's and 401k's.

They work a little bit different.

Tradition IRA contributions are tax deductible, BUT if you or your spouse have a 401k at work

or your income is high, that tax deduction may be eliminated.

There are income limits with traditional IRA's.

A reference link to this is in the description to this video below.

Let's compare the three types of retirement plans for self-employed.

I'm going to put them up here on the screen.

You don't have to calculate them or memorize them, you just have to see the concept to

be able to identify the right retirement plan that's best for you.

Starting with the solo 401k...let's say that you earn $100,000 this year and you're age

51.

With a solo 401k you are considered the employee and the employer.

So you contribute $19,500 as the employee + $6,000 the catch-up contribution because

you are over the age of 50.

Then you as the employer get to contribute $37,500 to max out the solo 401k, for a total

of $63,500.

The solo 401k is the plan you will be able to contribute the most money towards over

any other type of retirement plan.

Hang with me...we'll get you to a place so you can identify the right retirement plan

for you...

Let's take a look at the SEP IRA.

It's based on what you can contribute as a percentage of your compensation.

What do I mean by that?

You can contribute up to 25% of your net earnings from self-employment OR $57,000, whichever

one is the lesser of the two.

If you're newly self-employed, or have been at this for a long time, it's important to

choose the right type of retirement plan.

Remember I shared SEP IRA"s are the most flexible?

Let's check it out...

Let's say you earned $100,000 this year and your age 51.

You determine that your adjusted net earnings are $77,000.

I have a link in the description below, don't panic.

You can calculate this yourself.

You contribute 25% of the $77,000 for a total of $19,250 to your SEP IRA, and there's no

catch up fee to contribute more if you are over the age of 50 with a SEP IRA.

Clearly you can see the difference in the contribution limits in these two examples.

$63,500 with the solo 401k, and $19,250 with the SEP IRA when you earn $100,000 in 2020.

If you want to stash away they most money possible for retirement as a self-employed

person, consider the solo 401k.

And remember with the traditional IRA they are tax deductible, as long as you don't have

a 401k plan at work, and/or a solo 401k, and your income is less than $196,000 filing married, or $124,000 filing single.