Your Money Matters: How to plan for retirement if your job doesn’t offer a 401(k)
Richard Chew – Principal of 1st Capital Wealth Management Group
1st Capital Wealth Management Group
Tips:
1.Traditional or Roth IRA:
Best for: Those just starting out. If you’re leaving a job to start a business, you can also roll your old 401(k) into an IRA.
Contribution Limit: $7,000 in 2024 ($8,000 if age 50 or older).
Tax advantage: Tax deduction on contributions to a traditional IRA; no immediate deduction for Roth IRA, but withdrawals in retirement are tax-free.
Employee element: None. These are individual plans. If you have employees, they can set up and contribute to their own IRAs.
2. Solo 401(k)
Best for: A business owner or self-employed person with no employees (except a spouse, if applicable).
Contribution limit: For 2024, it’s $69,000, plus a $7,500 catch-up contribution or 100% of earned income, whichever is less.
Tax advantage: This plan works just like a standard, employer-offered 401(k): You make contributions pretax, and distributions after age 59½ are taxed.
Employee element: None. These are individual plans. If you have employees, they can set up and contribute to their own IRAs.
3. SEP IRA
Best for: Self-employed people or small-business owners with no or few employees.
Contribution limit: The lesser of $66,000 in 2023, $69,000 in 2024, or up to 25% of compensation or net self-employment earnings, with a $330,000 limit on compensation ($345,000 in 2024) that can be used to factor the contribution.
Tax advantage: You can deduct the lesser of your contributions or 25% of net self-employment earnings or compensation.
Employee element: Employers must contribute an equal percentage of salary for each eligible employee, and you are counted as an employee. That means if you contribute 10% of your compensation for yourself, you must contribute 10% of each eligible employee’s compensation.
4. Defined benefit plan (AKA Pension Plan)
Best for: A self-employed person with no employees who has a high income and wants to save a lot for retirement on an ongoing basis.
Contribution limit: Calculated based on the benefit you’ll receive at retirement, your age and expected investment returns.
Tax advantage: Contributions are generally tax deductible, and distributions in retirement are taxed as income.
5. My Bonus Tool: IUL/Indexed Universal Life:
Best for: Self-Employed People or those who have maxed out their IRA, 401k plans.
Contribution Limit: Unlimited
Tax Advantage: No future Tax on retirement withdrawals.
Key Elements: By using after-tax contributions/premium payments, you can use a life insurance policy (Example – $500,000 Death Benefit) to fund part of your retirement. If your monthly premiums were $500, roughly 60% percent of the premium would cover the cost of insurance and 40% would go towards tax-free future income later in life.
Cash Is King:
The most important thing, and I really urge clients to “ABS”- “Always Be Saving”
Because cash is always king and right now with Bank CD’s you can really take advantage of 4.5-5.2% interest rates…even in a regular old 1% savings/checking account you are putting money away with regularity…and over time it gives you the power to invest for the future.
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