When things are going well as you work at home, you may not be thinking that much about retirement. It’s something most people hope to do eventually, and you definitely need to plan for it. This isn’t too easy when you’re self employed or have a work at home job without benefits. You have to figure it out on your own. How will you start your retirement plan when you work at home?
First and foremost, consider consulting a financial professional. That’s not me. I’ll give some general tips here, but for your own situation, a professional can give you better guidance.
The first thing to do is figure out how you’re going to put money aside. What can you take from your income to put away for the future?
If you’re just scraping by, sadly, that may not be a lot. Try to put some money away when you can. If you’re doing better, put aside more. If at all possible, you need to do this. You can’t be certain of where you’ll be at financially at retirement otherwise.
Don’t let your retirement savings mess up your current financial situation, of course. You may want to pay down any credit card debt, for example, as that usually carries a relatively high interest rate.
Now let’s look at some of the retirement plans available to individuals.
A SEP IRA is a retirement savings account for people who are self employed. You’re allowed to contribute up to $50,000 or 25% of your income, whichever is less, as of 2012. Tax publication 560 is useful in determining how much of this is deductible. These plans are relatively simple to open, and the high contribution limit makes them appealing. You don’t have to contribute at the same level each year, so you can base it on how well you did that year.
The SEP IRA is more complex, however, if you have employees. Your contribution to your own account could mean you would need to contribute to the SEP IRA accounts of your employees. Talk to your financial professional. You can also get more details from Fit Small Business’ article, SEP IRA Rules, Contribution Limits, & Deadlines.
The Solo 401(k) is another good choice if you don’t have employees. Its contribution limits are
generous, and you don’t have to contribute every year. You can roll old 401(k) accounts into this one if you like.
However, if you have another job and you’re contributing to a 401(k) there, this might not be right for you. Contribution limits are for all 401(k) accounts you have, and the limits for employees are lower than the limits for employers (such as you, if you’re entirely self employed).
If you’re not looking to put away quite so much, a SIMPLE IRA may be a better choice. It was designed with small businesses in mind and can work well for self employed people with no employees. However, there is a set contribution, which may not be good if you want to vary how much you put in.
I know I’ve said it up above, but it bears repeating. Talk to your financial professional about which plan is right for you. I don’t know which one will work in your situation. A professional can help you figure that out. As soon as possible you should start saving for retirement so that those years are as comfortable as possible.