Self-employment seems to be increasing, particularly during COVID-19.
People love the idea that they can create their own schedules and work from anywhere they like.
For self-employed people, finances can be complicated and confusing. A common question I get is "What happens to my retirement plan (401(k)." What if I don’t have a traditional employer span>? Can I still contribute?
There are many retirement plans for self-employed people. I will be showing you the one that allowed me to reach my $100k goal at 25 years old. It was a SEP IRA. Let's see if you didn't even know about this amazing thing, or how it works.
What is a SEP IRA exactly?
You should first know that SEP stands to Simplified Employee Pension. I don't know why they chose "simplified," as self-employment is extremely rewarding but not simple.
A SEP IRA is a retirement program for self-employed people. There are many types of retirement plans. There are many types of retirement plans.
There is one difference between a standard IRA or 401k account and a SEP IRA. A SEP IRA tends to have a higher contribution limit .
To put things in perspective, for 2020 the contribution limit for either a Roth IRA or a Traditional IRA is $6,000 Your annual contribution limit for a 401k is $19,500. The 2022 SEP IRA contributions limit is 25%* of your salary or $57,000, which is incredible.
Two small caveats are to be aware of.
*The 25% refers your net earnings. This is basically the amount listed on Schedule C income minus deductions. You cannot also use the 25% contribution rule if your net earnings exceed $285,000 Your maximum contribution would be $57,000
Here's the lowdown on a SEP IRA
First, it is important to know that unlike a Traditional IRA you don't have to pay taxes upfront. Instead, you can wait until after you retire and you start to withdraw your money. Only then, you will have to begin paying income taxes on distributions. The SEP IRA does not offer a Roth option.
The best part about the SEP IRA for me is the possibility to contribute if your side hustle is a lucrative one. You can contribute to your SEP IRA even if you are a freelancer or side hustler, as long as your contribution limits are met. This was how I was able open a SEP IRA even though I was still a W-2 worker.
There is a catch: If you have a SEPIRA, your ability to deduct personal contributions from the amount you currently hold may be different.
There are a few things you should know:
The best thing about a SEPIRA is that the investorspan type="font-weight 400 ;">, period. You are the one who directs everything. You also have 100% ownership, meaning that you are the owner of all assets.
You can't withdraw money from your account prior to the age 59.5. However, there is a 10% penalty for early withdrawals. And you must start withdrawing funds after the age 72. You could face a 50% penalty if you do not comply. OUCH!
Why it is important to save for retirement, especially for women
Retirement is the most expensive expense in your lifespan styling="font-weight 400 ;">, There's no way around it. There is more to investing than you might think when it comes to the wage gap. Statistics from this survey show that nearly all women want to remain self-employed. However, there is a 28% wage difference between women and men in the self-employment sector.
This is due to the fact that 40% percent of self-employed workers don't have a retirement plan. Help change the story by opening a SEP IRA, and sharing this information with other self-employed friends in your local community.
I hope you found this explanation of SEP IRAs helpful. A SEP IRA can be a great way for self-employed people to have a successful retirement. You can track your progress with tools such as Personal Capital's Retirement Planner.
Personal Capital compensated Tori Dunlap ("Author"), for publishing this blog post. Additionally, in a separate referral arrangement between Author and Personal Capital Corporation ("PCC"), Author is paid $70 and $150 for each person who uses Author's webpage (www.HerFirst100k.com) to register with Personal Capital and links at least $100,000 in investable assets to Personal Capital's Free Financial Dashboard. These arrangements allow Author to earn financial benefits by referring potential clients and/or being incentivized for posting blog content favorable to Personal Capital. The Referral Agreement does not result in any fees or other charges being charged to investors by Author and Personal Capital. Referred investors to PCC who then subscribe to investment advisory services offered by Personal Capital Advisors Corporation ("PCAC") won't be charged any additional management fees or similar compensation to Author or PCC. Further information on PCAC can be found in Form ADV Part 2A, which is available here.
Frequently Asked Questions
What are the pros and cons of a gold IRA?
An Individual Retirement Plan (IRA) has a major advantage over regular savings accounts. It doesn't tax any interest earned. This makes an IRA great for people who want to save money but don't want to pay tax on the interest they earn. But, this type of investment comes with its own set of disadvantages.
You may lose all your accumulated savings if you take too much out of your IRA. The IRS may prohibit you from withdrawing funds from your IRA before you are 59 1/2 years of age. You will likely have to pay a penalty fee if you withdraw funds from an IRA.
Another disadvantage is that you must pay fees to manage your IRA. Many banks charge between 0.5%-2.0% per year. Other providers may charge monthly management fees, ranging between $10 and $50.
Insurance will be required if you would like to keep your cash out of banks. Most insurers require you to own a minimum amount of gold before making a claim. You may be required by some insurers to purchase insurance that covers losses as high as $500,000.
You will need to decide how much gold you wish to use if you opt for a gold IRA. Some providers limit the amount of gold that you are allowed to own. Others allow you the freedom to choose your own weight.
You'll also need to decide whether to buy physical gold or futures contracts. The price of physical gold is higher than that of gold futures. Futures contracts provide flexibility for purchasing gold. Futures contracts allow you to create a contract with a specified expiration date.
Also, you will need to decide on the type of insurance coverage you would like. The standard policy does not include theft protection or loss caused by fire, flood, earthquake. The policy does not cover natural disasters. If you live in a high-risk area, you may want to add additional coverage.
Additional to your insurance, you will need to consider how much it costs to store your gold. Storage costs will not be covered by insurance. Additionally, safekeeping is usually charged by banks at around $25-$40 per monthly.
If you decide to open a gold IRA, you must first contact a qualified custodian. A custodian keeps track of your investments and ensures that you comply with federal regulations. Custodians aren't allowed to sell your assets. They must instead keep them for as long as you ask.
Once you have chosen the right type of IRA to suit your needs, it is time to fill out paperwork defining your goals. Your plan should include information about the investments you want to make, such as stocks, bonds, mutual funds, or real estate. It is also important to specify how much money you will invest each month.
After filling out the forms, you'll need to send them to your chosen provider along with a check for a small deposit. The company will review your application and send you a confirmation letter.
Consider consulting a financial advisor when opening a golden IRA. A financial planner is an expert in investing and can help you choose the right type of IRA for you. They can help reduce your expenses by helping you find cheaper alternatives to buying insurance.
Can I own a gold ETF inside a Roth IRA
This option may not be available in a 401(k), but you should look into other options such as an Individual Retirement account (IRA).
A traditional IRA allows for contributions from both employer and employee. A Employee Stock Ownership Plan, or ESOP, is another way to invest publicly traded companies.
An ESOP offers tax benefits because employees can share in the company stock and any profits that it generates. The tax rate on money that is invested in an ESOP is lower than if it was held in the employees' hands.
A Individual Retirement Annuity is also possible. An IRA allows for you to make regular income payments during your life. Contributions to IRAs do not have to be taxable
What Is a Precious Metal IRA?
An IRA with precious metals allows you to diversify retirement savings into gold and silver, palladium, rhodiums, iridiums, osmium, or other rare metals. These metals are known as “precious” because they are rare and extremely valuable. They are great investments for your money, and they can protect you from inflation or economic instability.
Bullion can be purchased via a variety of channels including online sellers, large coin dealers, and grocery stores.
An IRA for precious metals allows you to directly invest in bullion instead of purchasing stock shares. This will ensure that you receive annual dividends.
Unlike regular IRAs, precious metal IRAs don't require paperwork or annual fees. Instead, your gains are subject to a small tax. You also have unlimited access to your funds whenever and wherever you wish.
How much is gold taxed under a Roth IRA
The tax on an investment account is based on its current value, not what you originally paid. So if you invest $1,000 in a mutual fund or stock and then sell it later, any gains are subject to taxes.
If you place the money in a traditional IRA, 401(k), or other retirement plan, there is no tax when you take it out. You pay taxes only on earnings from dividends and capital gains — which apply only to investments held longer than one year.
The rules governing these accounts vary by state. For example, in Maryland, you must take withdrawals within 60 days after reaching age 59 1/2 . Massachusetts allows you to wait until April 1. And in New York, you have until age 70 1/2 . To avoid penalty fees, it is important to plan and take distributions in time to pay all your retirement savings.
Can I buy gold with my self-directed IRA?
However, gold can only be purchased with your self-directed IRA. To do so, you must first open a brokerage account at TD Ameritrade. You can also transfer funds from an existing retirement fund.
Individuals can contribute as much as $5,500 per year ($6,500 if married filing jointly) to a traditional IRA. Individuals can contribute up to $1,000 annually ($2,000 if married and filing jointly) directly to a Roth IRA.
You should consider buying physical gold bullion if you decide to invest in it. Futures contracts are financial instruments based on the price of gold. They allow you to speculate on future prices without owning the metal itself. But physical bullion refers to real gold and silver bars you can carry in your hand.
- This is a 15% margin that has shown no stable direction of growth but fluctuates seemingly at random. (smartasset.com)
- The price of gold jumped 131 percent from late 2007 to September 2011, when it hit a high of $1,921 an ounce, according to the World Gold Council. (aarp.org)
- Contribution limits$6,000 (49 and under) $7,000 (50 and up)$6,000 (49 and under) $7,000 (50 and up)$58,000 or 25% of your annual compensation (whichever is smaller) (lendedu.com)
- If you take distributions before hitting 59.5, you'll owe a 10% penalty on the amount withdrawn. (lendedu.com)
- (Basically, if your GDP grows by 2%, you need miners to dig 2% more gold out of the ground every year to keep prices steady.) (smartasset.com)
- 7 U.S. Code SS 7 – Designation of boards of trade as contract markets
- 26 U.S. Code SS 408 – Individual retirement funds
- Saddam Hussein’s InvasionHelped Uncage a Bear In 1989 – WSJ
- Are you interested in keeping gold in your IRA at-home? It's Not Exactly Legal – WSJ
3 Ways to Invest Gold for Retirement
It's crucial to understand where gold fits in your retirement strategy. There are many ways to invest in gold if you have a 401k account at work. You might also consider investing in gold outside your workplace. If you have an IRA (Individual Retirement Account), a custodial account could be opened at Fidelity Investments. You may also want to purchase precious metals from a reputable dealer if you don’t already have them.
These are three easy rules to remember if you invest in gold.
- Buy Gold with Your Money – You don't need credit cards, or to borrow money to finance your investments. Instead, invest in cash. This will help protect you against inflation and keep your purchasing power high.
- Physical Gold Coins – Physical gold coins are better than a paper certificate. The reason is that it's much easier to sell physical gold coins than certificates. Also, there are no storage fees associated with physical gold coins.
- Diversify your Portfolio – Don't put all your eggs in one basket. By investing in multiple assets, you can spread your wealth. This can reduce market volatility and help you be more flexible.
By: Tori Dunlap
Title: SEP IRA
Sourced From: www.personalcapital.com/blog/retirement-planning/sep-ira/
Published Date: Sun, 04 Dec 2022 16:00:47 +0000