Self-employed retirement plans in Columbia, IL. The freedom of having your own business in Columbia, IL is one of the great things about being self-employed. But that freedom can be accompanied by uncertainty, particularly in in regards to saving for retirement, you don't have an employer who will set up a plan for you. Barely more than 10% of self-employed people have a workplace retirement plan, but many would be wise to explore their options. In addition to setting you up for the golden years of your dreams, partnering with a financial advisor to get started and maintain your self-employed retirement plan in Columbia, IL offers significant tax advantages that can help you improve your bottom line.
Few wealth management and retirement planning firms know what it's like to be self-employed or a small business owner more than Correct Capital. In fact, we were inspired by a self-employed individual, our founder's father (you can read more about our story on our website). We know that your business and retirement aspirations go beyond just profit, and we are devoted to offering personalized solutions that reflect your goals. Continue reading to learn more about your self-employed retirement plan options in Columbia, IL, or call Correct Capital at 314-930-401(k) or contact us online to speak to a member of our advisory team now.
What Self-Employed Retirement Plans Are There?
There are a few different retirement savings options that the self-employed can set up, each with its own set of advantages and considerations. A Columbia, IL financial advisor can help you grasp the pros and cons of each option and opt for the most suitable one for your circumstances. Typically, your self-employed retirement plan options in Columbia, IL include:
Traditional or Roth IRA
Plan Overview: IRAs, or Individual Retirement Arrangements, are personal savings plans that provides individuals with tax advantages to save for retirement. If you deposit to a traditional IRA, deposits are typically tax-deductible, and any gains on investments grow tax-deferred, but withdrawals in retirement are liable to income tax. In contrast, Roth IRA payments are made with money you've already paid taxes on, but qualified distributions in retirement, including earnings, are tax-free. In both a traditional an a Roth IRA, distributions are penalty-free if you are at least 59½.
Eligibility: While many retirement plans, such as 401(k)s, are tied to employment, traditional and Roth IRAs can be set up by anyone with an earned income.
Contribution Limits: For 2023, the maximum yearly contributions for IRAs are $6,500, or $7,500 if you're 50 or older.
Simplified Employee Pension Plan (SEP IRA)
Plan Overview: A Simplified Employee Pension (SEP) IRA is a retirement plan that allows self-employed individuals to contribute a percentage of of the money they make from their self-employment. Since you are self-employed, you (the employee) have a contribution limit of no more than the 25% already contributed by you (the employer). If you have employees, you must contribute an equal amount to their plans. You may choose to contribute a flat-dollar amount or a percentage of annual income to employee accounts. SEP IRAs may be a suitable self-employed retirement plan for businesses that experience fluctuating income periods. SEP IRAs don't have the high upfront costs or administrative expenses other retirement plans do.
SEPs work like traditional IRAs, where contributions are made with money you haven't paid taxes on and distributions are taxed as income.
Eligibility: Self-employed individuals and any employer, can establish a SEP.
Contribution Limits: Contribution limits for employees in a SEP IRA are the lesser of:
- 25% of compensation, or
- $66,000
For the self-employed individual, the amount eligible to be contributed is based on a specific formula.
Solo 401(k)
Plan Overview: A Solo 401(k) plan, also known as an Individual 401(k) or one-participant 401(k) plan, is a self-employed retirement plan for sole proprietors or those whose only employee is a spouse. Solo 401(k)s work about the same as employer-sponsored 401(k) plans, and you can make contributions as an employee and on your own behalf as the employer. This offers greater potential for savings than some other retirement savings plans, however the possibility of greater retirement savings is often counteracted by more limited investment options. In a one-participant 401(k) plan, you can make either traditional or Roth deferrals, which each feature the same tax advantages as their IRA contribution counterparts.
Eligibility: Only sole proprietors and their spouses have access to individual 401(k)s.
Contribution Limits: As a self-employed individual with a solo 401(k) plan, you can make two types of contributions:
- Elective deferrals (as an employee) of 100% of your earned income from self-employment, up to the annual contribution limit. In 2023, those limits are $22,500, or $30,000 if you are 50 or older.
- Employer profit-sharing contributions (as an employer) which cannot exceed up to 25% of your net self-employment income, which is your net profit minus half of your self-employment tax and the elective deferrals you made.
On an annual basis, contributions cannot exceed $66,000, or $73,500 if you're over age 50 (in 2023).
Individual Defined Benefit Plan
Plan Overview: A defined benefit plan is a retirement plan that offers a a predetermined benefit to self-employed individuals upon retirement. As opposed to 401(k)s or IRAs, a defined benefit plan doesn't fluctuate because of investment gains, but allows self-employed people to have an exact dollar figure as their income in retirement. This plan is best suited for high-earning self-employed individuals who want to save a a significant sum for retirement and are willing to make substantial contributions. Contributions are tax deferred and withdrawals are taxed as income in retirement.
Eligibility: Any self-employed individual who runs a business where they're the only owner or has less than five employees can open an individual defined benefit plan, but it's typically only well-suited for those over 50 who earn well into the six figures. Typically, good candidates for defined benefit plans are:
- Partners or owners who want to save more than $66,000 (or $73,500 over age 50)
- Companies already contributing 3-4% who are willing to contribute more
- Companies who are sure of their profit patterns
- Partners or owners over age 40 who desire to make up for earlier years when they couldn't save as much
Contribution Limits: The contribution limit is calculated by an actuary based on your income, age, and retirement goals. Contribution limits are adjusted annually.
The Importance of a Financial Advisor for Your Self-Employed Retirement Plan in Columbia, IL
A financial advisor in Columbia, IL specialized in self-employed retirement plans can be a valuable asset for self-employed individuals. They have the experience to help you navigate the intricacies of retirement planning and develop a customized plan that aligns with your goals. A financial planner will analyze your financial situation, understand your risk tolerance, and help you make smart decisions for yourself, both as a business owner and future retiree. Part of what we do for you includes:
- Help you pick a plan that best fits your needs and goals
- Customize the plan to your needs even further
- Adopt a written plan in accordance with IRS regulations
- Arrange a trust plan for assets
- Create a record keeping system
- Help you understand the plan's terms
- Monitor and adjust your plan as needed
- Offer continued financial education and support as long as you work with us
- Increase your retirement income by increasing your social security benefits
Self-Employed Retirement Plans in Columbia, IL: Correct Capital's Process
Columbia, IL business owners who don't want to invest the time, interest, and skill set to manage their own self-employed retirement plan can become overwhelmed with the different plans available to them. At Correct Capital, our financial advisors handle the bulk of the retirement planning work on your behalf, and attempt to make achieving your business and retirement aspirations as simple as we possibly can. We can help you get set up with your self-employed retirement plan in four simple steps:
- Schedule a Call — It only takes 20 minutes for one of our advisors to know if we're the best firm to help you reach your goals. This brief introduction lets us get a feel for your needs with no obligation for you.
- Gather Information — If we both decide to move forward, we'll ask for more info, including how many employees you have (if any), your current finances, and what kind of retirement you want to have. This allows us to put together a custom plan suited specifically for your needs.
- Review Your Plan — After we put together a plan based on the information you provide, we'll meet with you and discuss your plan in detail to ensure you're comfortable with it.
- Implementation and Monitoring — Once we've agreed on your plan, we'll put everything in place so you can start saving. As long as we work together, we'll keep you up-to-date with how things are going and adjust your plan to ensure it stays suited to your needs.
Our financial planners and retirement consultants are fiduciary advisors who have a legal and moral obligation to do what's best for you and only you. We are proud to provide clear communication and high-quality service to assist you reach your self-employed retirement goals.
Other services we offer in Columbia, IL include:
- Succession Planning
- Fiduciary Financial Advisor
- Company 401(k) Plans
- ESOP Advisor
- 401(k) For Small Business
- Small Business Retirement Plans
- Tax Planning
- Social Security Consultants Near Me
Call Correct Capital for Your Columbia, IL Self-Employed Retirement Plan
Your business isn't simply an enterprise to you, and your Columbia, IL financial advisors need to provide you with more than merely sage financial advice. Correct Capital takes pride in getting to know our clients and what makes them and their business tick to deliver tailored self-employed retirement plans. We give all our Columbia, IL clients our I.O.U. promise: all of the advice you get from us will be independent, objective, and unbiased. To get started on your self-employment retirement plan in Columbia, IL, speak to a member of our team today at 314-930-401(k) or contact us through our website.
