Author Topic: Best Retirement Account For Low-Income Self Employed  (Read 2553 times)

RusticBohemian

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Best Retirement Account For Low-Income Self Employed
« on: May 28, 2015, 06:20:06 AM »
Before starting my own business I funded a 401k through work, which I'm about to roll over into a IRA at Vanguard. I also have a Roth IRA at Vanguard funded with extra money I made while being employed.

Currently, my business is in a building phase and this year I expect to make between $19,000 and $25,000. I expect to be making $30,000 to $40,000 within a few years.

My question regards the best tax strategy/investment account for retirement savings for someone in my income range.

Last year, when I was only made about $12,000, I earned so little money that, according to FreeTaxUSA, the tax website I use, putting money into a 410k would not have reduced my tax liability (I think because there are minimum taxes for self employed people that cannot be reduced by such contributions. I'm having trouble finding out why that is and what the income range cut off is for this to be a factor.)

I'm unsure what retirement account I should be using for my income range. I believe I could continue to fund my IRA or Roth Ira, but might it be a better idea to put money into a Solo 401k or a  SEP IRA?

Any thoughts on the best way to invest for retirement?


forummm

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Re: Best Retirement Account For Low-Income Self Employed
« Reply #1 on: May 28, 2015, 09:18:24 AM »
If you have a very low marginal tax bracket, or owe no tax, a Roth IRA would probably be the best IRA vehicle for you.

I don't know if you can have a Roth Solo 401k, but you might look into that as a possibility. If you can't, and you are still in the 10% or 0% marginal rate zone, maybe stick with taxable investments for the time being.

Insanity

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Re: Best Retirement Account For Low-Income Self Employed
« Reply #2 on: May 28, 2015, 09:44:19 AM »
I use a solo 401K, but an even better idea is look at how you have your company structured.  Are you an S-corp or LLC?  That might have more impact as you grow.

bacchi

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Re: Best Retirement Account For Low-Income Self Employed
« Reply #3 on: May 28, 2015, 10:27:26 AM »
Vanguard has a Roth solo 401k option.

forummm

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Re: Best Retirement Account For Low-Income Self Employed
« Reply #4 on: May 28, 2015, 12:46:35 PM »
Vanguard has a Roth solo 401k option.

Sweet! Rustic, you could contribute $5500 to a Roth IRA and $18k+ to a Roth Solo 401k, and never have to pay tax when you pull out funds in retirement. With the solo 401k, you can contribute the full $18k as an employee, and then an additional amount as an employer as well. That additional amount works out to be about 18.5% of your self-employment income (see IRS link for specifics).

http://www.irs.gov/Retirement-Plans/Self-Employed-Individuals-Calculating-Your-Own-Retirement-Plan-Contribution-and-Deduction
http://forum.mrmoneymustache.com/investor-alley/sole-proprietorship-and-individual-401k/

RusticBohemian

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Re: Best Retirement Account For Low-Income Self Employed
« Reply #5 on: May 28, 2015, 02:01:35 PM »
Thanks guys. That really helps.

forummm

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Re: Best Retirement Account For Low-Income Self Employed
« Reply #6 on: May 28, 2015, 04:54:24 PM »
Thanks guys. That really helps.

Glad we can help! <tip of the top hat>