While being your own boss and running a business does offer a certain degree of freedom and convenience, chances are you are not doing enough to save for retirement- while traditional 9 to 5 gigs might seem boring and monotonous, experts believe the retirement options and 401(k) plans offered by corporations can be invaluable in your retirement age.
15% Don’t Save At All
In America, some 15 million people have ditched the traditional 9 to 5 job in favor of managing their own business or earning source, but according to surveys and research, only 55% of them actively save for retirement with 30% putting away a small portion of their profits ‘’from time to time’’.
An even more alarming research finding is that almost 15% of these individuals never put away any of their earnings towards savings at all!
Only 1 in 10
While 72% of the employees in larger companies and corporations utilize a 401(k) retirement plan which takes care of their finances and savings for retirement age, entrepreneurs are typically so wrapped up in their day-to-day business activities, they tend to overlook the importance of setting up a ROTH IRA account or a retirement plan- until Uncle Sam comes knocking on their door.
According to CPA and financial advisor Kelly Long, it’s not until an entrepreneur is slapped with the first tax bill that they spur into action and actively pursue setting up their retirement plan.
This is due to the fact that not only is the cost of setting up the plan tax-deductible, some plans also offer tax deductibles for the payments deposited into that account.
Consulting a Financial Advisor
Most people tend to underestimate the amount of savings that can be had by setting up a retirement plan at an early age; there are various limitations and regulations governing different plans- a 401(k) for instance, allows you to set aside up to $53,000 (or $59,000 if you’re 50 years of age or older) whereas a traditional IRA account, by comparison, has an annual limit of $12,500 ($15,500 if you’re 50 years of age or older.
Additionally, individuals have the ability to take a loan on their 401(k), an option that is not available for IRA accounts and lastly, having a 401(k) being a self-employed business owner, there are some maintenance and administrative costs that are incurred annually, whereas SEP IRA accounts would not be subjected to such costs.
Seeking advice and guidance from a financial advisor can be critical to find the perfect plan for your net income, target savings and other business-related perks to maximize your financial performance.
