Entrepreneurs make the business world go ’round. Without the vision and drive of entrepreneurs, there would be no innovation. Going into business is an exciting time, but it’s also busy. When starting a business, entrepreneurs often give up their lives for a year or more. During that time, there are lots of pieces and moving parts to keep track of. It’s crucial, however, not to lose track of one of the most important things for anyone in any field. Entrepreneurs should always have one eye on their retirement.
There are plenty of advantages to starting a business. It’s exhilarating to bring a new idea to life. The downside to an entrepreneurial instinct can be a lack of benefits. Traditionally, American workers look to their employers for health insurance, pensions, or, in recent years, plans such as 401(k)s. Entrepreneurs need to be proactive when it comes to setting up their retirement accounts. This is true even for young entrepreneurs in their 20s and 30s.
IRAs are an excellent option for self-employed people. Typically, self-employed people have chosen Traditional or Roth IRA options. However, SEP IRAs can be a great choice, too. These have simple rules and no to low annual fees. Account-holders can invest up to a quarter of their income in a SEP IRA, provided the total doesn’t exceed a prescribed amount. For 2019, that dollar cap is $56,000. SEP IRAs are great for sole proprietors. The employees of a SEP IRA holder aren’t eligible for one themselves. However, they can invest in a Traditional or Roth IRA. SIMPLE IRAs are more flexible and are available to growing businesses that have hired employees.
Finally, there’s an option called the Individual IRA. This works a lot like the IRAs that are available through traditional employers. This type of account is designed for sole proprietors of businesses and their spouses. It’s not available to employees of a given small business. Individual IRAs do consider the account holder as an employee, just of themselves. There are caps on contributions, but this account type has one important advantage. Individual IRA holders can borrow from their accounts to build their businesses. These loans must be paid back, typically over a five-year schedule.