If you are a freelancer or small business owner, you probably have a lot to worry about when it comes to your work or business. You have expenses to track, work to do, clients to satisfy, and maybe an employee or two to oversee. With all that, it can be easy to forget about saving for retirement. Not only that, but you don’t have the reminders regarding opening a retirement account or automatic retirement account enrollment that are standards in larger business and corporations. Thus, it’s imperative that you take it upon yourself to think about and take the required steps to start saving for retirement. If you are freelancing as a semi-retirement gig or started your own business after putting in time in the corporate world, then you may already have an IRA or 401(k) where you have built up a nice nest egg. If you don’t, then go and open a traditional or Roth IRA (401(k)s are employer sponsored). There are other options too that are geared towards those that own their own small business. A SEP IRA is another great option for freelancers and the self-employed as eligibility is fairly wide-ranging and it offers a lot of flexibility regarding contributions. However, it should be noted that it has required minimum distributions (RMDs) just like that of a traditional IRA. Another option that can be enticing if you own a business with a few employees–or work for a small business–is a SIMPLE IRA. A SIMPLE IRA offers options for both employees and employers and requires employer matching, which is a win for employees. You could also consider just doing a traditional IRA or a Roth IRA, which are fairly common retirement saving options for many Americans. Regardless of what you decide to do, all that matters is that you are saving for retirement and are preparing for your future. If you need help deciding, you should talk with a financial advisor, particularly one who works with a lot of small business owners.
It may not be evident, but the gaps between the classes in American society have widened over the past decade. The rich have gotten richer, while the middle class and lower classes have struggled to improve their lots. Meanwhile, costs of living have gone up, and along with that, the amount needed to live a comfortable life in retirement. On top of all this, the Baby Boomer generation–one of the largest segments of our country–has aged and started to retire, placing a strain on the resources that once were considered hallmarks of retirement. Things such as Social Security and pensions are not longer able to fully fund a post-career life. Therefore, it’s no surprise that politicians–from state legislators to members of Congress–have turned and eye towards retirement saving. They’ve been quick to act by working on or passing legislation that makes it easier for small business to provide retirement plans to employees and may even make it a requirement for employers in the future. Yes, there is Congressional legislation being discussed that could require employers with more than 10 employees to offer retirements savings options. This could be big news for people working for small or medium sized business or for employers who are too cheap to offer retirement benefits. The interesting thing about these legislative efforts is that they seem to garner bipartisan support, which is a rarity these days. It doesn’t matter where you stand politically, but any legislation that closes the retirement savings gap is a good thing. If you are a young worker (i.e. just starting out in a career), you may want to keep an eye on this legislation as it could mean less stress about retirement when it comes to where you work. If you are an employer, you may want to track how this may impact your business.
Owning your own small business or sole proprietorship can be a lot of work. Depending on what industry you operate in and what your overhead costs are, it can be tough to eek out a profit or pay yourself what you really think you’re worth. Thus, planning for retirement as a small business owner can seem like a fruitless endeavor, especially if you are struggling to keep your business afloat. However, that doesn’t mean you can’t save for retirement. You can open an IRA and will have options regarding what type of IRA you open regardless of how much you make. You could do a traditional IRA, a Roth IRA, or Simplified Employee Pension (SEP) IRA. You may be asking yourself what a SEP IRA is. It’s a relatively simple and inexpensive retirement account that is popular among small business owners and sole proprietors. They are easy to administer and come with relatively straightforward rules. There are some nice perks to SEP IRAs. First off, if you make a contribution to a SEP IRA, you can also still make a contribution to a Roth or traditional IRA in the same year as long as you are eligible to do so. Another advantage is that a SEP contribution may be made to the same IRA to which you make your traditional IRA contribution, so long as it as your custodian allows it and you are eligible to make a contribution. Finally, there is no age limits on making contributions. You can make contributions as long as you are still working and eligible to make one. The one drawback to a SEP IRA is that you cannot do a salary deferral. Therefore, you have to make the contribution yourself. If you are a small business owner and considering a SEP IRA, you should talk with a certified financial planner to make sure you do so correctly and to set a plan for making contributions.
Regardless of the outcomes of yesterday’s elections, it appears that Congress could be poised to expand retirement options in the near future. The Retirement Enhancement and Savings Act (RESA), which appears to have bipartisan support, could expand retirement plan access for many workers as well as allow more employers to offer such plans. The biggest selling point of the legislation is that it will allow small businesses to band together–pooling resources and increasing buying power–and offer multi-employer retirement plans (MEPs) to employees similar to those offered by larger businesses and corporations. This can be an enticing offer for small businesses and could be a recruiting and hiring advantage in the future for them. While MEPs are currently available for some small business, RESA would do away with some of the current restrictions, making it easier for small employers to band together. RESA also looks to repeal the prohibition on workers over 70 1/2 making contributions to IRAs. This could be an advantage for younger generations who may have to work longer–but will also live longer–to save enough for retirement in the future. As with any legislation, there’s always the possibility that it could hit a snag somewhere in the process, but for now, it looks like it has a good chance of passing with support from both sides of the aisle. If you are looking to make some changes to your retirement plans or are an employer interested in offering more retirement benefits to your employees, you may want to pay attention to RESA and brush up on what it offers.
President Trump is expected to sign an executive order today that will direct the Treasury to review the rules on required minimums distributions (RMDs). The initiative directs the Treasury Department to review the rules regarding whether investors can keep more money in 401(k)s and IRAs for longer periods of time, most likely beyond the account owner turns 70½. If changes are made, they could allow for retirees to have more control over when they are required to begin taking money out of their retirement accounts. The executive order also focuses on small businesses and their ability to offer retirement savings plans to employees. The initiative would direct the Treasury and Labor Departments to work together to issue potential regulations that could make it cost-effective and efficient for small businesses to band together and offer retirement plans to their employees. While this executive order doesn’t necessarily mean that new rules or changes will definitely come about, it does mean that there could be some changes regarding what types of plans employers offer and how much time you have to allow your nest egg to grow. Stay tuned!