When you start a company, your financial plan is usually focused on the growth and building of the business. You should also plan for your life after the business is over and how you will get out. You have five options for retirement plans that you can use to help you achieve your retirement goals.
Investing in a 401k for Single-person Businesses
Traditional employers typically offer 401k plans as part their benefits packages. However, freelancers and solo-entrepreneurs can also create one. It would be similar to opening an IRA through a brokerage. However, you would do this using your business.
Just be aware that contribution limits include $19,500 per year for yourself, a 25% cap on your total compensation, as well as a $57,000 annual overall limit. You are usually allowed to make additional contributions if your age is over 50.
Investing in a SEP IRA
SEP, or simplified employee pension IRA, is similar to a solo 401k plan. However, it can be used by small businesses that have more than one employee. The annual contributions of each employee are limited to $57,000, which is the maximum allowed for a solo 401k.
A SEP is similar to a Savings Incentive Match Plan For Employees IRA (SIMPLE), but SIMPLE is only for companies with 100 employees or less. Employers must make minimum matching contributions for their employees.
Investing in Laddered CD accounts
A CD account might be a good option if you don't want to take on the risk of investing in stocks or ETFs. A CD account offers the advantage of earning more interest than a savings account and virtually no risk.
Unfortunately, you can't withdraw from a CD before it matures. You might consider a CD ladder, where certain amounts are in short-term accounts and others in long-term accounts. A CD is not the best investment strategy or way to protect your wealth from inflation.
Investing in Annuities
Annuities can be used as an alternative investment account. They grow tax-free, just like IRAs. However, they don't usually have any contribution limits. These accounts are typically arranged through insurance brokers. They usually begin with a lump sum investment but grow each year and pay you a certain amount.
With a few exceptions, investment decisions are made almost entirely by annuity agent. There are also a few drawbacks that make IRAs less appealing than annuities. However, there are many entrepreneurs who have enjoyed the benefits of IRAs.
Investing in Personal Self-Directed IRAs
You can invest in a self directed IRA if you want full control over your investment decisions and are not satisfied with the limited selection offered by brokerages.
This is something that some brokerages and financial institutions offer, but it's also possible to register an LLC for IRA purposes. You can also invest in hard assets such as real estate and IRS-approved gold or silver with a self-directed IRA. Goldco experts state that a self-directed IRA allows you to invest in real estate, bonds and private businesses as well as precious metals.
A 401(k), or rollover, allows Americans to transfer money to an IRA account without paying taxes or penalties. Many future retirees have been drawn to a gold IRA rollover due to the volatility in the stock market. This protects their future through the investment security of gold.
To fund your new IRA, you can use an gold IRA Rollovers Guide if you already have an IRA or 401k. Remember that you are responsible for ensuring you understand the legal process and the financial risks involved in funding your new IRA.
There are many ways to invest the income you earned as an entrepreneur in your future. It's up to you to determine which investments are suitable for your assets and how much work you can do on your own.