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Are You Self-Employed?

Here Are 4 Retirement Plan Choices For You

I hear it all the time, "I'm having a hard time saving for retirement. I don't know how much to save, and I don't know where to put the money in the meantime so I won't spend it." This is a legitimate statement. And when you are self-employed, it can be even more difficult, especially when every dollar is coming out of your own pocket. But, if you don't invest in your future, no one else will. This needs to be your top priority, and It's never too early to start (just ask some 60-year olds).

There are several types of saving and investment vehicles that have features which will help you gradually build your nest egg. The following four retirement plans are specifically designed for you:

1. Simplified Employee Pensions (SEPs): The main attraction of SEPs is that they are, indeed, simplified. For one thing, SEPs are generally exempt from stringent tax reporting requirements that apply to most other plans. As a "defined contribution" plan, deductible contributions for the 2011 tax year are limited to 25% of your compensation or to $49,000 ($54,500 if you are 50 or older), whichever is less. The maximum compensation taken into account for these purposes is $245,000.

Like other tax-advantaged retirement plans, SEPs generally don't permit distributions before you reach age 59½ (you'll be assessed a 10% penalty and owe income tax on early withdrawals) and you must begin taking annual required minimum distributions (RMDs) after age 70½.

2. Savings Incentive Match Plans for Employees (SIMPLEs): Many tax rules for SEPs also apply to SIMPLEs, which are also exempt from the usual tax reporting rules. But unlike SEPs, which let you contribute even if your business has another retirement plan, a SIMPLE must be your sole retirement savings vehicle, and SIMPLEs also have lower ceilings for tax-deferred contributions. For 2011, the maximum is $11,500 ($14,000 if you are 50 or older).

The general tax rules for early withdrawals and RMDs also apply to SIMPLEs. But there's a 25% penalty on withdrawals made within the first two years of participation.

3. Keogh plans. At one time, if you were self-employed, the Keogh was the only retirement plan in town, but its popularity has waned now that there are other, generally simpler alternatives. The amount you can put into a Keogh each year depends on whether it's set up as a defined-contribution or a defined-benefit plan. For 2011, the maximum deductible amount for a defined-contribution Keogh is the lesser of 20% of earned income or $49,000 ($54,500 if you're at least 50 years old).


4. Solo 401(k) plans. This staple of retirement planning for the employees of large companies used to be pretty much off limits to the self-employed, who were deterred by prohibitively high administrative costs. But now it's feasible to operate a 401(k) for just one person (or for a sole proprietor with a few employees).

The maximum tax-deductible salary deferral allowed for 2011 is $16,500 ($22,000 if you're at least 50). A major advantage of this plan for the self-employed is that it lets you combine contributions as an employee with matching contributions as an employer. This lets you reach the $49,000 maximum for retirement plans this year ($54,500 for those 50 and over).

Of course there are other rules and regulations relating to these 4 plans, and finding the best fit means taking a closer look at the details of each and considering its pros and cons. We can help you with these details and explore the options. Call me at 732-974-3770, write me at or visit us at .

See you next time!


Securities offered through American Portfolios Financial Services, Inc. Member: FINRA, SIPC. Investment Advisory services are offered through American Portfolios Advisors, Inc., an SEC Registered Investment Advisor. Froehlich Financial Group, LTD is not an affiliate of APA or APFS. 

Disclosure: If legal, tax, or other expert assistance is required, the services of a competent professional should be sought. This article is for informational purposes only.



Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc.(APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.

Securities offered through American Portfolios Financial Services, Inc. Member: FINRASIPC. Investment Advisory products/services are offered through American Portfolios Advisors, Inc., a SEC Registered Investment Advisor. Froehlich Financial Group, Ltd. and American Executive Benefits, Inc. are not affiliates of APA or APFS. Executive wealth management products/services are offered through Froehlich Financial Group, LTD. a registered investment advisor

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