| Self employed individuals have to take care of many | | | | maximum contribution. The maximum amount is set |
| things that those who work for others have done for | | | | each tax year and is currently set at about $49,000 |
| them. Some of those things include paying taxes, | | | | annually for individuals under 50 and $54,000 for those |
| securing health insurance and planning for retirement. | | | | over 50. For business, the maximum amount is set |
| Most employees have some sort of 401K plan | | | | by net earnings |
| available to them to use as a retirement instrument. | | | | The definition of self employed, as it refers to 401Ks, |
| Though self employed people have more possibilities | | | | includes business owners, freelancers, contractors, or |
| open to them in terms of retirement planning, they will | | | | partners in a Limited Liability Company (LLC). If you |
| often find that a 401K is the also the best choice for | | | | fall under one of these groups then you can contribute |
| them. | | | | into two types of 401K accounts. The first type, |
| In 2001, congress passed the Economic Growth and | | | | known as a Roth account, uses taxed earnings to |
| Tax Relief Reconciliation Act, which frequently states | | | | fund the plan. The other type allows you to use |
| that the wise choice for self employed people is a | | | | pre-tax money and defer paying taxes until the funds |
| 401K retirement account. They cite the 401K's | | | | are withdrawn, usually at a much lower rate. Some |
| simplicity and low administrative costs as reasons | | | | people prefer to take the Roth route so they will only |
| making it the best choice. | | | | have to pay taxes on earnings and interest when the |
| 401K for individuals are very similar to traditional plans | | | | funds are withdrawn, which is better for people who |
| for groups and are actually less regulated. Since the | | | | plan to continue working past retirement age. |
| individuals and their families are the only ones | | | | Though 401Ks are not always the best alternative for |
| participating in the plan, decisions carry no impact on | | | | self employed individuals, it will often be a good |
| other people and therefore enjoy less government | | | | instrument to at least add diversity to one's retirement |
| interference. Occasionally business partners can | | | | portfolio. Unlike a traditional employer 401K, the |
| contribute to the same 401K, but this too sequesters | | | | individual will have to decide into what the account |
| the risk to only a few people. | | | | invests and a financial planner should be consulted. |
| The biggest reason for individuals to invest in 401K | | | | Regardless of one's employment situation, retirement |
| plans as opposed to other retirement plans is the ability | | | | can't be ignored and the self employed must be even |
| to invest larger amounts of capital into the plan. | | | | more conscious of their retirement plan than those |
| Retirement accounts have a limited maximum | | | | who can count on a corporate or government pension |
| contribution per individual each year that can be tax | | | | upon retirement. |
| deferred. Individual 401Ks have a much larger | | | | |