Owning a photography business isn’t like your typical 9-5PM job. As a teacher, I had money taken out of my paycheck every month and put into TRS or the Teacher’s Retirement System. This is essentially social security for teachers. Many others get social security and/or a 401K benefit from their employers.
Owning your own business is a lot different. No one is taking money automatically out of your account forcing you to plan for the future. In order to make sure that you are financially stable when you retire, it is crucial that you start planning now! Often times, you can also receive some tax deductions for planning for retirement.
So here is my advice to business owners who are wanting to set aside money for their eventual retirement—Invest in a ROTH IRA. ( Roth IRAs are after-tax retirement accounts, in contrast to traditional IRAs and most employer-sponsored retirement plans, which are tax-deferred.) My dad had been telling me for years that I needed to set one up sooner rather than later so that I would have a next egg when I was ready to retire. Boy, I should have listened to him sooner.
The earlier you start saving and investing, the more you money you will have in retirement. When you start earlier you can end up investing less but still end up way ahead of others who wait.
I started my ROTH in January of 2018 and just two years later, my $5500 had turned into over $8000. It wasn’t until I noticed what was going on in my account that I realized how amazing my IRA was. LESSON LEARNED! I need to be sitting aside the max contributions every year so that my money can GROW!
So Why a Roth IRA When Saving for Retirement?
A Roth IRA lets you lock in your current tax rate since you’ll pay tax on your contribution now. You won’t have to pay on your qualified withdrawals. No matter how large your Roth IRA grows, you won’t pay a cent to the IRS when you withdraw your money in retirement. This can be an especially good benefit if you’re in one of the lower tax brackets.
Since you’ve already paid tax on your contributions, you are free to withdraw them at any time, and for any reason. If you don’t necessarily want your money tied up until you turn 59 ½, a Roth IRA could be the best choice for you.
Roth IRAs have no minimum distribution requirements. In contrast, tax-deferred retirement accounts such as traditional IRAs and most 401(k)s generally require retirees to start taking withdrawals by age 70 ½.
You can contribute to a Roth IRA no matter how old you get, as long as you’re earning income.
Since you can keep your money in a Roth IRA indefinitely, it can be an excellent tool for planning your retirement.
My advice, talk to your CPA and see if a Roth IRA is a good fit for you! I’ve been pretty intrigued learning about this financial stuff and seeing my money increase with little effort on my part.
Do you have any other ideas for self-employed people to save for retirement? Tell me in the comments!