Because most real estate agents are self-employed, deciding on a retirement plan is often more complex than it would be if you worked for a company. You have to take the initiative, determine the best way to ensure your long-term financial stability and make the most of the assets you have today.
As you look at plans, consider how much money you intend to save every year. For the following accounts, your contributions will be tax-deductible, and the money you save will be tax-deferred until retirement time.
Here are three recommended retirement plans often used by self- employed individuals:
- A SIMPLE IRA, Savings Incentive Match Plan for Employees, is a low-cost, low-complexity retirement plan available to those who are self-employed. Your maximum annual contribution is $12,000. If you want to withdraw money within two years of creating the account, there is a significant penalty.
- A SEP-IRA, simplified employee pension, is an account with pre-tax savings that allows you to contribute a quarter of your total self-employment income, or $51,000. This plan offers flexibility, as you can put aside more or less at the end of the year when you are filing taxes.
Banks, mutual fund companies and brokerage firms all sell SIMPLE IRAS and SEP-IRAs, which are easy to set up, can be inexpensive and are tax-deductible.
- An individual 401(k), also called a solo 401(k), can be purchased in a traditional or Roth version. Your contributions can amount to $51,000. If you are 50 or older, you can save up to $56,500. A previous employer’s 401(k) savings can be rolled into this account, and you are also able to take out a loan against this account if you need funds early.
Only certain financial firms offer individual 401(k)s.
Other plan options to explore include a defined benefit plan (like the Keogh plan) or an annuity. While a defined benefit plan allows for large contributions, there is a minimum requirement for how much is put in every year. Annuities do not have maximums for contributions and include the option to sell annuity payments if you need money sooner than expected.
Every plan you look at will have its own features and restrictions. Regardless of which you choose, the key step is getting started right away. The longer your money can remain in savings, growing with tax benefits, the more security you will have in your financial future.
Alanna Ritchie has spent years studying, writing and learning to love the intricacies of the English language. Today, she works as a content writer for Annuity.org, where her primary focus is personal finance.