Column: How to save when you’re self-employed

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By Joel Harris

Self-employed entrepreneurs put a lot of blood, sweat and tears into building their businesses from the ground up. Because of this, they usually re-invest their profits back into their businesses to help it grow. This can be a double-edged sword for self-employed professionals if they’re not careful. As we all know, life can pass us by in the wink of an eye. It just seems like yesterday we were reading headlines about worldwide computer systems crashing on Jan. 1, 2000. Boom, here we are 15 years later where 5-inch “smart” devices run seemingly everything in our daily lives.

If you’re self-employed, you need to ask yourself today, “Am I doing enough to save for my future in the event I can’t sell my business or it fails?” I realize that is counterintuitive to how you think, but in reality, it is one of the most important questions you will ask yourself in your lifetime. It is undoubtedly important to put money back into you business; but it is equally important to pay your future self too.

You need to make a proactive decision to do this so that one day when you’re worn down from beating on doors, servicing clients, collecting receivables, updating your website, paying bills, creating the next marketing plan, or any of the other several hats you wear, you will have the means to take care of yourself.

How do you do this? Simple. Establish a SEP IRA or Owner Only 401(k) plan. For a SEP IRA, you have the ability to put up to 25 percent of your annual earned income into a tax-deferred account that will be put aside for your future. For example, if you paid yourself $70,000 in earned income last year, you can contribute up to $14,000 into the SEP depending on how your business is set up. Furthermore, you get to deduct that $14,000 from your federal income taxes to lessen your tax liability. If you want to save more than that, you can establish an owner only 401(k) plan and contribute up to $53,000 in 2015.

 


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