Are you self-employed? Do you own a business? If so, you may be living the dream. You get to manage your own schedule and perhaps earn a living doing what you love. Your business is likely the result of years of hard work and planning.
As fulfilling as self-employment may be, it can also create difficult problems. That’s especially true when it comes to retirement planning. As a self-employed individual, you don’t have the benefit of employer retirement plans, such as a 401(k) or pension. Those plans can be valuable resources for traditional employees and help them accumulate assets for retirement.
Fortunately, you have other tools at your disposal. There are a number of retirement accounts designed specifically for self-employed individuals. In fact, some of them let you put away large sums on a tax-advantaged basis each year. Below are a few popular vehicles you can use to save for retirement:
Since its inception nearly 40 years ago, the 401(k) has become one of the most commonly used retirement savings vehicles. It’s popular with employers because it relieves them of the burden of funding a pension. The 401(k) plan is popular with employees because it usually offers a broad range of investment options, tax-deferred growth and employer matching contributions.
While a 401(k) can be a powerful retirement accumulation tool, it can also be complex to manage, especially after you’ve left your employer. Many workers leave their 401(k) balances in their former employer’s plan after they leave. They may feel that’s their best option, or they may forget about the balance altogether.
However, many employers have decided they aren’t going to keep former employee balances in the plan forever. Many companies have adopted a policy known as “forced rollover.” Under a forced rollover, your balance is automatically rolled out of the plan and into an IRA. Most plans only enforce this type of rollover for balances under a certain threshold.