Self-Employed? Here’s How to Plan for Retirement

Don't forget to include retirement savings in your plan to build a successful business.

When you’re hard at work as a self-employed entrepreneur or freelancer, retirement can seem like something that’s miles away. It can not only feel less important than getting your business or trade off the ground, but also seem like you won’t have spare money to set aside for a good, long time. You can save for your future, however. Here are some steps self-employed individuals can take to plan for their retirement.

1. Enroll in a Retirement Plan

Yes, there are retirement plan options out there for self-employed people like you. These include:

One-Participant 401K Plan: The one-participant or “solo” 401K is essentially the same as a traditional 401K designed to cover a business owner with no employees. (Note: You can hire your spouse and include them in this plan as well.) According to the IRS, you can contribute elective deferrals up to 100% of your earned income and employer non-elective contributions (determined by a special computation). Contributions are made pre-tax (you’ll be taxed when you withdraw the money, which you typically can’t do without a penalty until age 59½) and give you great flexibility in how much (or how little) you contribute. The contribution limits for 2017 are $18,000 and 25% of compensation up to the amount that’s defined in your plan, respectively, according to the IRS.

Traditional Individual Retirement Account (IRA): Many self-employed people can see immediate rewards from contributing to a traditional IRA, as these are tax-deductible in certain situations, giving you an immediate break on your taxable income. For example, if your income is $60,000, and you contribute $4,000 to a traditional IRA, you’ll only be taxed on $56,000 for that year. Keep in mind, however, that you’ll have to pay taxes when withdrawing the money and tax penalties can arise if you withdraw your retirement dollars early.

Simplified Employee Pension (SEP) IRA: To set this plan up, you simply fill out a form — no annual reporting to the IRS is required. The IRS notes that you can open a SEP IRA through your bank or other financial institution and can contribute up to 25% of your net earnings from self-employment. This type of plan is generally best if your business has no employees, or very few, because you have to include all employees in the plan — and everyone has to receive the same amount, which can get pricey if you have a lot of people working for you.

Savings Incentive Match Plan for Employees (SIMPLE) IRA: Per the IRS, a SIMPLE IRA plan is best suited as a start-up retirement savings plan for small employers. Under this plan, both employees and employers can contribute to traditional IRAs.

You can read more about the retirement plan options available to self-employed individuals on the IRS’s website and check out our glossary of common retirement terms you’ll want to know.

2. Budget By Percentages, Not Dollars

As a self-employed person, your income likely fluctuates from month to month, meaning you can’t budget the same way that a non-self-employed person would. It can help to think about budgeting for non-fixed expenses in percentages, instead of dollars, personal finance expert AJ Smith suggested in a blog post on Credit.com.

“If, for example, you want to save for retirement, try putting aside a certain percentage of your income rather than a certain dollar amount,” Smith wrote. “A dollar amount can lead you to save too little in high-income months and more than you can realistically afford in low-income ones.”

3. Be Vigilant About Your Taxes

Paying taxes can be a lot more complicated when you’re self-employed. For instance, throughout the year, you’ll have to estimate how much you owe for Medicare, Social Security and income tax and pay it in quarterly installments — and face penalties if you do so incorrectly. Plus, you’ll have to a pay a self-employment (SE) tax, which is essentially a combination of the Social Security and Medicare tax.

It’s important to properly work your tax payments into your budget, so you don’t wind up spending dollars you don’t really have. You may also want to consult with a tax accountant or other financial expert about your taxes, so you don’t miss out on important deductions or credits that could drive more money to your bottom line — and subsequently your retirement plans.

4. Stay on Top of Your Credit

Similarly, you’ll want to monitor your credit scores to make sure they’re in good shape and that you don’t wind up paying extra in interest on personal and business financing. Those dollars can severely hamper your ability to save for your eventual happy golden years. (You can see how your credit is doing by getting two free credit scores every 14 days on Credit.com.)

Remember, too, many business lines of credit require a personal guarantee, meaning you’ll be personally liable for any debts your business has that go unpaid. As such, you’ll want to carefully consider all loans you’re thinking of taking on to finance your business. Overextending yourself can make it harder to save not just for retirement, but also for future bills and/or emergencies that may come your way.

Image: julief514 

The post Self-Employed? Here’s How to Plan for Retirement appeared first on Credit.com.

5 Steps That Let Me Quit the Cubicle

how_to_be_self_employed

I recently quit my job. I didn’t quit working. I just quit working for someone else. It’s been more than a month now and my husband and business partner, David, and I feel as good about our decision today as the day I left. One of the best parts about quitting my traditional job is watching the cycle of emotions our friends and family go through when we tell them that I quit my job to focus on our own business, Debt Free Guys.

It starts when their eyes open wide after they hear the not-too-surprising news that I quit the cubicle. This is quickly followed by an attempt to contain a wince, as they consider the loss of steady income, health and life insurance. Then, almost as if on cue, they drift into a daydream as they ponder, “Could I quit my job?”

The fact is they can and so can you. Here are five keys that helped us take another step closer to our dream of geographic and financial independence.

1. We’re Using What We Know

The No. 1 reason why people say they can’t start their own business, whether as a side-hustle or a full-time job, is that they don’t know what to do. They’re thinking too hard.

What do you do now that you enjoy or even love? This could be something you do at your current job or as a hobby. Do you feel the universe pulling you in a certain direction?

We were both in finance for a total of 15 years when we first met. Despite this, we had a combined total of $51,000 in credit card debt. We then applied our theoretical knowledge and gained practical experience by paying off our debt and turning our net worth into a net positive nearing $500,000.

We enjoy personal finance, investing and financial planning. Because of our experiences and our love of helping others with their money, we turned our passion into our business.

We’ve put ourselves out as writers, speakers, podcasters and experts on personal finance and we’re now helping others achieve their financial dreams. Me quitting the cubicle puts us one step closer to achieving our dreams. When our business becomes our primary source of income and David quits the cubicle, too, our dreams will come true.

2. We Saved Money

While our passion is our guide, it won’t be our demise. When we decided to turn our side-hustle into our hustle, we added an additional $10,000 to our emergency savings. We did this by cutting back on non-essential spending and putting it in our emergency savings account with no bells or whistles.

We keep our emergency savings in an account with no check writing or debit card features, which makes accessing these funds inconvenient. This minimizes urges to spend this money on whims.

We, also, benefit from being partners in both life and business. David is now the primary breadwinner and we can live comfortably, though not extravagantly, on his salary.

This means we’re implementing what we did to pay off our debt, such as only buying groceries that are either on sale or for which we have coupons. We cook at home rather than dine out. Boxed wine has replaced bottled wine because it’s cheaper per bottle and stores longer.

All of this is temporary and we know we can live frugally today to grow our business because we lived frugally yesterday to pay off our debt.

3. We’re Working Hard

Thomas Edison said, “Opportunity is missed by most people because it is dressed in overalls and looks like work.”

We embraced hard work and we knew it wouldn’t be easy. We wake at 4:30 in the morning and are frequently up until midnight balancing a combination of David’s job and our business. Weekends aren’t to kick back and relax but to roll up our sleeves and put in back-to-back 12-hour days.

In the past, we wondered if it was worth it. As we took this big step toward our dream, we realized it is.

4. We Prepared

There were steps we took to prepare for me quitting. One such step included transferring my health insurance coverage to David’s health insurance plan through his current employer. Another was me acquiring life insurance, as I’m no longer covered under an employer.

I’ve initiated a rollover from my former employer’s 401K plan into my existing IRA Rollover account. I’ve elected for a direct rollover because this is the best way to ensure that I won’t pay taxes or penalty for my rollover. An indirect rollover risks me paying taxes at our current income rate and a 10% penalty if I don’t complete the indirect rollover within 60 days.

Talk with your accountant to determine the best option for you.

5. We Leapt

Finally, we leapt. Many struggle to make big life changes because they’re waiting for the perfect time. There’s never a perfect time.

In fact, I delayed my original termination date by 90 days because my employer asked me to complete a project on which my team was working. We considered delaying my termination again because the economy showed signs of weakness.

Some people might say we should’ve saved more than our $10,000 cushion. Others might say we should’ve waited until after the upcoming presidential election ended. Still more might say leaving any job is foolish.

Despite all the reasons we could’ve mustered, we decided now was the time to take one more step toward our dream. If you dream to quit the cubicle, too, our five-step plan may help you.

[Editor’s note: If you dream of being your own boss it’s not only a good idea to make sure you have adequate emergency savings and minimal debt, but also that your credit is in good standing as poor credit can end up costing you more in higher interest rates. You can start shoring up your credit using Credit.com’s free credit report card, which gives you two free credit scores, updated monthly, plus an action plan to help you manage your credit.]

Image: Geber86

The post 5 Steps That Let Me Quit the Cubicle appeared first on Credit.com.

7 Best Online Tax Preparation Software for the Self-Employed

Tax return check

When you’re self-employed, filing taxes can be a nightmare. In lieu of W-2s, multiple 1099s start trickling into your mailbox. If you’re a sole proprietorship or solo LLC, you’ll have to tackle Schedule C. If you run an LLC with your spouse, depending on your business structure, and filing status, you may be looking at filling out Schedule K-1.

You have deductions to take, and credits to find. Tax preparation software should make the process easier, guiding you through each step as it sorts out the complicated jargon, and identifies the various additional forms you’ll be required to file.

Unfortunately, when you start venturing into all those additional forms, many tax software programs will start charging you additional fees, or, worse yet, not have the forms or support available to help you meet your tax-filing needs.

With those unique needs in mind, we’ve compiled a list of online tax preparation products that support the self-employed. Every product will have its pros and cons; your decision will likely boil down to how much support you need versus how much you’re willing to spend. Listed in ascending order according to price, these prices are subject to change throughout the tax season, especially for bigger brands.

For the sake of simplicity, ‘Price’ refers to the upfront cost (which includes filing your Federal return), and we make note if the State return is an additional charge as well as any alternative pricing options. The below tax preparation software is ranked based on price.

1. OnLine Taxes

Price: Free
State Return: $9.95
Alternative Pricing Structure: Pay $7.95 for the Premium version with live chat, phone support, audit support, year-over-year comparison, and get your state return for $7.95.

Pros

  • This is the cheapest option that made the cut!
  • The free package includes email as the only option for customer support, but paying the small fee to upgrade to premium gives you access to live chat and phone support.
  • Basic software that gets the job done, especially for those who feel confident filing with limited guidance.

Cons

  • Additional fee of $29.95 for paying for OnLine Taxes’ services through your refund instead of upfront.
  • No app available.
  • This program is no frills. You input your data into forms through the interview process, and your information will be applied to your returns for you to review. While customer support is available, you will not get a lot of help from the product itself.

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2. FreeTaxUSA

Price: Free
State Return: $12.95
Alternative Pricing Structure: Pay $5.95 for the Deluxe version with audit support, live chat customer support options, and unlimited amended returns. State returns still priced at $12.95

Pros

  • Incredibly affordable.
  • This software takes you through the entire process, starting with an interview that is built to help you find write-offs, and including prompts for various deductions and credits.
  • Speedy reply time for email support. Guarantee of 2 days, but most people report getting an answer within an hour.

Cons

  • Customer service options are restricted to email. If you purchase the Deluxe package, you will also have access to live chat, but no phone-in help is available.
  • No app available.
  • No fancy calculators.

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3. TaxACT Premium

Price: $21.99
State Return: $14.99
Alternate Pricing Structure: Pay $29.99 for the Ultimate bundle package, and get your state return for free.

Pros

  • Quite possibly the best value on our list, especially if you go for the Ultimate.
  • Customer service is available through email and phone.
  • As you file, you’ll be inundated with tips and explanations to help you through the process.

Cons

  • No app available for filing current year’s taxes at this level.
  • No audit support outside a collection of online articles.

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4. OnePriceTaxes.com Premium

Price: $39.95
State Return: Free (included in price)

Pros

  • What you see is what you get; there are no hidden fees. If you order the $39.95 Premium package, you won’t pay anymore for add-ons or filing fees.
  • Live chat customer support, though it is often deferred to email that is answered within 24 hours. As more people start filing, that wait time may become longer.
  • While there is no interview, the program does hold your hand through the filing process, offering explanations along the way, and offering deduction tips to maximize any refund.

Cons

  • No phone support.
  • No app available.
  • No audit support.
  • Limited guidance on additional forms such as Schedule C. While these forms are available, the instruction is not there, and questions will have to be filed through customer support.

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5. 1040.com Premium

Price: $39.95
State Return: $19.95

Pros

  • Customer service available through live chat, though it is typically deferred to email.
  • Mobile capabilities, but no app to actually file your return.
  • Guidance through the filing process, with links to applicable articles on their robust blog.

Cons

  • No phone support available. Customer service tends to rank lack luster when compared to other programs.
  • No filing app available, though you can file via mobile.
  • No audit support.
  • Additional fees may apply. For example, if you want to pay for 1040.com services out of your refund, you’ll have to pay extra.

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6. H&R Block Premium

Price: $49.99
State Return: $36.99

Pros

  • Customer support available via email, live chat, and phone.
  • Live, in-person audit support.
  • Detailed guidance throughout the filing process.

Cons

  • Users report difficulty navigating when an error is found.
  • You may be subject to some additional fees, especially if you opt to receive a refund on MasterCard’s Emerald card.
  • App is available, though it is difficult to use and gets poor ratings.

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7. TurboTax Home & Business

Price: $79.99
State Return: $36.99

Pros

  • Automatic import of W-2 and 1099 data from participating employers.
  • During the 2014 tax season, TurboTax users were up in arms as they were charged extra fees to file additional forms like Schedule C, or denied the capability to do so. TurboTax heard the uproar, and has reverted to old functionalities including these forms for the 2015 tax year.
  • Help is available on-screen with a live agent who can see your screen as you ask your question. Additional help is available via forums, where questions may be answered by TurboTax or fellow users.
  • Comprehensive app.

Cons

  • TurboTax has a solid product, but has been raising their prices year after year. This is the most expensive option on our list.
  • If you want to pay for TurboTax out of your refund, you may be charged a processing fee. If you want TurboTax MAX, which includes audit assistance, tax identity restoration, and limited wait times when you call in for help, you will have to pay an additional fee, as well.

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While price doesn’t necessarily indicate a superior product on our list, those who feel more comfortable with tax terminology and procedures are likely to find their best fit near the top amongst the cheaper options. Those who need intense assistance may wish to pay more for products with advanced features located at the bottom of the list.

When you’re self-employed, tax season can be overwhelming. The good news is that there’s no shortage of options to help you meet your filing needs.

The post 7 Best Online Tax Preparation Software for the Self-Employed appeared first on MagnifyMoney.