Benefits For The Self-Employed Part 3: Two More Retirement Planning Options

For the last installment of this series on benefits for the self-employed, I am going to explore two additional options for retirement planning, the SEP IRA and the individual 401k. It is good that there are a few options available to home-based business owners when it comes to retirement planning. Of course, the fact that there are differences between the various options that are available means that you will have to invest some time in learning about your options and choosing the one that will work best for you.

The SEP IRA and the individual 401k both offer flexible annual contributions and high contribution limits. This is great news for anyone who is in a position to be able to contribute a lot of money to their retirement savings. Of the two options, the individual 401k is likely to offer the highest contribution limit because of the way that your annual contribution is calculated.

One very important factor that you should keep in mind when you are deciding whether a SEP IRA or an individual 401k is the right retirement planning tool for you is your ability to borrow against your retirement savings. You cannot borrow against a SEP IRA, so if you think that you may want to be able to take out a loan where your retirement plan will serve as collateral, do not choose that type of retirement plan. In contrast, you may borrow against an individual 401k for up to half of the plan’s value, or fifty thousand dollars, whichever is smaller.

Other things that you may want to know about SEP IRAs are that they are easy to set up and you do not have many administrative responsibilities. While the administrative responsibilities and administrative fees associated with an individual 401k are higher than with a SEP IRA, remember that you can borrow against the individual 401k. It is also worth mentioning that if you start out with a SEP IRA and then encounter a need to borrow against it or want to be able to contribute more to it, you can convert that SEP IRA into an individual 401k by completing some simple paperwork. Choosing a retirement planning option for yourself might take a little bit of thought and research, but you will thank yourself later on when you are able to enjoy your retirement thanks to your efforts at planning and saving for it.

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