Self-employment seems to be increasing, particularly during COVID-19.
People love the idea that they can create their own schedules and work from anywhere they like.
For self-employed people, finances can be complicated and confusing. A common question I get is "What happens to my retirement plan (401(k)." What if I don’t have a traditional employer span>? Can I still contribute?
There are many retirement plans for self-employed people. I will be showing you the one that allowed me to reach my $100k goal at 25 years old. It was a SEP IRA. Let's see if you didn't even know about this amazing thing, or how it works.
What is a SEP IRA exactly?
You should first know that SEP stands to Simplified Employee Pension. I don't know why they chose "simplified," as self-employment is far more rewarding than it seems.
A SEP IRA is a retirement program for self-employed people. There are many types of retirement plans. There are many types of retirement plans.
There is one difference between a standard IRA or 401k account and a SEP IRA. A SEP IRA tends to have a higher contribution limit .
To put things in perspective, for 2020 the contribution limit for either a Roth IRA or a Traditional IRA is $6,000 Your annual contribution limit for a 401k is $19,500. The 2022 SEP IRA contributions limit is 25%* of your salary or $57,000, which is incredible.
Two small caveats are to be aware of.
*The 25% refers your net earnings. This is basically the amount listed on Schedule C income minus deductions. You cannot also use the 25% contribution rule if your net earnings exceed $285,000 Your maximum contribution would be $57,000
Here's the lowdown on a SEP IRA
First, it is important to know that unlike a Traditional IRA you don't have to pay taxes upfront. Instead, you can wait until after you retire and you start to withdraw your money. Only then, you will have to begin paying income taxes on distributions. The SEP IRA does not offer a Roth option.
The best part about the SEP IRA for me is the possibility to contribute if your side hustle is a lucrative one. You can contribute to your SEP IRA even if you're a freelancer or side hustler, as long as your contribution limits are met. This was how I was able open a SEP IRA even though I was still a W-2 worker.
There is a catch: If you have a SEPIRA, your ability to deduct personal contributions from the amount you currently hold may be different.
There are a few things you should know:
The best thing about a SEPIRA is that the investorspan type="font-weight 400 ;">, period. You are the one who directs everything. You also have 100% ownership, meaning that you are the owner of all assets.
You can't withdraw money from your account prior to the age 59.5. However, there is a 10% penalty for early withdrawals. And you must start withdrawing funds after the age 72. You could face a 50% penalty if you do not comply. OUCH!
Why it is important to save for retirement, especially for women
Retirement is the most expensive expense in your lifespan styling="font-weight 400 ;">, There's no way around it. There is more to investing than you might think when it comes to the wage gap. Statistics from this survey show that nearly all women want to remain self-employed. However, there is a 28% wage difference between women and men in the self-employment sector.
This is due to the fact that 40% percent of self-employed workers don't have a retirement plan. Help change the story by opening a SEP IRA, and sharing this information with other self-employed friends in the community.
I hope you found this explanation of SEP IRAs helpful. A SEP IRA can be a great way for self-employed people to have a successful retirement. You can track your progress with tools such as Personal Capital's Retirement Planner.
Personal Capital compensates Tori Dunlap ("Author"), for publishing the blog post. Additionally, in a separate referral arrangement between Author and Personal Capital Corporation ("PCC"), Author is paid $70 and $150 for each person who uses Author's webpage (www.HerFirst100k.com) to register with Personal Capital and links at least $100,000 in investable assets to Personal Capital's Free Financial Dashboard. These arrangements allow Author to earn financial benefits by referring potential clients and/or being incentivized for posting blog content favorable to Personal Capital. The Referral Agreement does not result in any fees or other charges being charged to investors by Author and Personal Capital. Referred investors to PCC who then subscribe to investment advisory services offered by Personal Capital Advisors Corporation ("PCAC") won't be charged any additional management fees or similar compensation to Author or PCC. Further information on PCAC can be found in Form ADV Part 2A, which is available here.
Frequently Asked Questions
What precious metals are allowed in IRA?
Gold is the most widely used precious metal for IRA account accounts. Investments in gold bullion coins or bars can be made as well.
Precious metals are considered safe investments because they don't lose value over time. They are also a great way of diversifying your investment portfolio.
Precious metals include palladium and platinum. These three metals are similar in their properties. Each metal has its own use.
For example, platinum is used in making jewelry. Palladium is used to create catalysts. For producing coins, silver is used.
It is important to consider how much money you are willing to spend on your precious metals when making a decision about which precious material to choose. You may be better buying gold that is less expensive per ounce.
Also, think about whether or not you wish to keep your investment secret. If you do, you should choose palladium.
Palladium has a higher value than gold. But it's also less common. You'll probably have to pay more.
Another important factor when choosing between gold and silver is their storage fees. Storage fees for gold are determined by its weight. For larger quantities of gold, you will be charged a higher storage fee.
Silver is stored according to its volume. Silver is priced by volume. You will pay less to store smaller amounts.
All IRS rules concerning gold and silver should be followed if your precious metals are stored in an IRA. This includes keeping track of transactions and reporting them to the IRS.
What precious metals do you have that you can invest in for your retirement?
Understanding what you have now saved and where you are currently saving money is the first step in retirement planning. Start by listing everything you have. This should include any savings accounts, stocks, bonds, mutual funds, certificates of deposit (CDs), life insurance policies, annuities, 401(k) plans, real estate investments, and other assets such as precious metals. To determine how much money is available to invest, add all these items.
If you haven't already done so, you may want to consider opening a Roth IRA account if you're younger than 59 1/2 years old. A Roth IRA is not able to allow contributions to be deducted from your taxable earnings, but a traditional IRA can. However, you will not be able take tax deductions on future earnings.
If you decide that you need more money you'll need another investment account. Start with a regular brokerage.
What Should Your IRA Include in Precious Metals?
Protect yourself against inflation by investing in precious metals like gold and silver. It's not just an investment for retirement; it also helps you prepare for any economic downturn.
Although gold and silver prices have risen significantly in the past few years they are still considered safe investments. They don't fluctuate quite as much like stocks. These materials are also in high demand.
Gold and silver prices are usually stable and predictable. They are more stable when the economy is growing than they are during recessions. They are great money-savers as well as long-term investments.
Ten percent should go into precious metals. This percentage can be increased if your portfolio is more diverse.
What is the best precious metal to invest in?
High returns on capital are possible with gold investments. It also protects against inflation and other risks. The price of gold tends to rise as people become concerned about inflation.
Gold futures are a great idea. These contracts will guarantee that you will receive a specific amount of gold at an agreed price.
However, futures on gold aren't for everyone. Some people prefer physical gold.
They can easily exchange their gold with other people. They can also sell their gold whenever they wish.
Many people prefer not to pay taxes on their gold. To do that, they buy gold directly from the government.
This will require you to make multiple trips to your local postal office. You will first need to convert any existing gold in coins or bars.
You will then need to obtain a stamp for the coins and bars. Finally, you send them to the US Mint. The US Mint will melt the coins and bars to make new ones.
These bars and coins are stamped with the original stamps. These new coins and bars are legal tender.
But if you buy gold directly from the US Mint, you won't have to pay taxes.
Decide which precious metal you would like to invest.
Do you need to open a Precious Metal IRA
This depends on what your investment goal is and how risk-tolerant you are.
Open an account today if your retirement plan calls for you to withdraw the funds.
The reason is that precious metals are likely to appreciate over time. You also get diversification benefits.
The prices of silver and gold tend to be linked. They make a good choice for both assets and are a better investment.
You shouldn't invest precious metal IRAs if you don't plan on retiring or aren't willing to take risks.
- The IRS also allows American Eagle coins, even though they do not meet gold's 99.5% purity standard. (forbes.com)
- Depending on your financial situation, most experts recommend you invest no more than 5% to 10% of your retirement funds in precious metals. (forbes.com)
- To qualify as IRA allowable precious metals and be accepted by STRATA, the following minimum fineness requirements must be met: Gold must be 99.5% pure, silver must be 99.9% pure, and platinum and palladium must both be 99.95% pure. (stratatrust.com)
- Same tax rules as traditional IRA SEP IRA contributions in 2022 are limited to 25% of compensation or $66,000, whichever is less Before setting up a Silver IRA, understand the fees and IRS restrictions. (sltrib.com)
- Gold IRA – Add Sparkle to Your Retirement Nest Egg
- Understanding China's Evergrande Crisis – Forbes Advisor
How to Buy Gold for Your Gold IRA
Precious metal is a term used to describe gold, silver, platinum, palladium, rhodium, iridium, osmium, ruthenium, rhenium, and others. It can be any element naturally occurring between atomic numbers 7 and 110 (excluding the helium). This is valuable due to its beauty and rarity. Gold and silver are the most popular precious metals. Precious metals can be used to make money, jewelry, industrial products, and art objects.
Gold prices fluctuate daily because of supply and demande. Investors are looking for safe havens away from unstable countries and precious metals has seen a large demand over the past decade. The increased demand has led to a significant rise in prices. However, the increasing cost of production has made some people concerned about investing in precious metals.
Gold is a reliable investment due to its rarity and durability. Unlike many investments, gold never loses value. You can also buy and sell gold, without having to pay taxes. You have two options to invest in gold. You can either purchase gold bars and coins or invest in futures gold contracts.
Physical gold coins and bars provide immediate liquidity. They are easy to store and trade. They aren't very effective in protecting against inflation. To protect yourself from rising gold prices, you can consider buying gold bullion. Bullion can be defined as physical gold. It comes in different sizes. One-ounce pieces are available for billions, while larger quantities such as kilobars and tens of thousands can be purchased. Bullion is typically stored in vaults to protect it from theft and fire.
You might prefer to own shares of gold than actual gold. If so, then you should look into buying futures gold. Futures allow you to speculate on how the price of gold might change. Gold futures allow you to be exposed to its price without owning any physical commodity.
If I wanted to speculate about whether gold's price would rise or fall, I could buy a gold contract. My position at the expiration of the contract will be either “long-term” or “short-term.” If I have a long contract, it means that I believe gold's price will rise. In exchange, I'll give money now and promise to get more when the contract ends. A short contract on the other side means that I believe gold's price will fall. In exchange for making less money in the future, I am willing to accept the money now.
I will receive the amount of gold in the contract, plus interest, when the contract ends. This way I have exposure to the gold's price without having to actually hold it.
Precious metals are great investments because they're extremely hard to counterfeit. Precious metals are more difficult to counterfeit than paper currency. This is why precious metals have always held their value well over time.
By: Tori Dunlap
Title: SEP IRA
Sourced From: www.personalcapital.com/blog/retirement-planning/sep-ira/
Published Date: Sun, 04 Dec 2022 16:00:47 +0000