One of the major reasons people are hesitant to pursue more entrepreneurial careers that allow them to stay at home, is that they feel they will miss out on the benefits of working a corporate job. These benefits include health and life insurance, certain incentives for years worked, and a solid retirement plan.
As true as it is, however, that corporate jobs have benefits, it is untrue that the stay-at-home worker has to miss out on these perks! Many entrepreneurs and self-bosses overlook investing in their retirement simple because it seems complicated, and it isn’t handed to them on a package deal from their employer. But if you take advantage of the opportunity now, you can begin establishing a healthy retirement plan for yourself that you will grateful for later! I learned this from my grandfather who learned this the hard way. He, too, was his own boss with a home office, but he failed to invest in retirement and, thus, had to work up to the end.
Let’s learn from his mistake and explore the many options available to entrepreneurs and stay-at-home self-bosses:
The Solo 401(k) can be more complicated in nature than an SEP IRA, which we will discuss below, but it makes sense for a lot of reasons. These plans are designed for small business owners and their spouses, so if your stay-at-home job is a business that you started, then this may be the ideal set-up for you.
With both the individual contributions and matches in company contributions, the stay-at-home entrepreneur can actually contribute up to 25% of their income, as is possible with the SEP IRA, mentioned below. For the stay-at-home worker over 50, the maximum contribution can increase by as much as $5,000. If it was wasn’t for the interest and fees associated, it is technically possible to even take a loan out against the Solo 401(k). It is quite simple to set up a Solo 401(k), and the initial charges are minimal ($100) if anything at all.
The “Simplified Employee Pensions” plan, or SEP IRA, is one of the simplest ways to save for retirement for the work-at-home or self-employed. As mentioned above, the SEPIRA holder can save a maximum of 25% of their net income, up to the $49,500 limit, similar to that of the Solo 401(k).
Every contribution made to the SEP IRA must be made by the self-employed and from the income of the small business alone (that is, to the exclusion of any additional income from another source). The busy self-employed person will be pleased to find that the necessary reports for the SEP IRA are very straight-forward and save a ton a of time as they compare to those of other plans. The SEP IRA does, however, lack a Roth option, for those concerned with taxation.
SIMPLE IRA (aka “Savings Incentive Match Plan for Employees” IRA), is just what it sounds like, it’s quite simple to set up—as in, only 20 minutes! A SIMPLE IRA is a handy way for the self-employed to both save for retirement, and even extend benefits to employees.
A SIMPLE IRA has lower maximum contributions than both the Solo 401(k) and SEP IRA, however. Just 10 years ago, the limit was $11,500. For those who are over 50, however, that number goes up by about$2,500.
A SIMPLE IRA is really only viable for small, but productive businesses with the necessary financial backing, since a SIMPLE IRA-offering company must match the contributions of its employees. Often, this means a 100% match on up to three percent of the workers’ income. A SIMPLE IRA is not an option if you already have a different retirement plan.
Other Plans to Consider…
When contemplating retirement as a “work-at-home-preneur”, it’s important to also keep an open mind to the usual retirement plans. Roth IRAs (mentioned earlier), classic IRAs, annuities and other investment accounts are likewise effective and fruitful. There are even several reasons why these sorts of plans would trump the typical self-employment plans (but I can’t get into those reasons here).
Even if you only plan on working for yourself at home for a short period of time, it’s important to start considering how to provide for retirement. Even if you like what you do, you probably won’t want to be doing it when you’re 80!