Planning for Retirement When Working from Home

Planning for Retirement When Working from Home

You won't be able to - or want to - work forever. Someday, you'll want to enjoy the fruits of your labor, take long walks and spend even more time with your family. If you haven't thought about setting up a retirement fund, don't panic. It really isn't ever too late. Despite what you may think, there are viable options for small businesses and sole proprietors.

The world of finance is pretty daunting, but the three main retirement plan options for small businesses and sole proprietors aren't terribly complicated. They are a Simplified Employee Pension plan (SEP), a Simple IRA or an Individual 401k. Here's a brief explanation of what each one does:

• The SEP lets you contribute up to a certain amount each year ($45,000 in tax year 2007). Typically the amount is higher than the contribution limit for Traditional or Roth IRAs. As with most retirement accounts, earnings on your savings are tax-deferred until they're withdrawn. In addition, you get the added benefit of reducing your taxable income with each contribution so come tax time you pay less.
• If your franchise or MLM takes on a few employees, a Simple IRA may be the best choice for you. A simple IRA offers most of the benefits of a 401k without IRS reports to file. In addition, you can deduct your contributions as a business expense. Not all employees have to enroll. Participation is voluntary and there's no required contribution level for those who do choose to participate.
• Maybe you're going it alone home business. If so an Individual 401K is the way to go. It's not a viable plan for a business will add a non-spouse employees, but it works very well for self-employed investors and their spouses or small business owners. Current tax laws allow contributions up to 25 percent of earnings. The contributions are generally deductible as a business expense and generally there isn't a fee to set up an account.

Keep in mind that your contributions will be invested in mutual funds, so take the time to pick one that suits your needs - there's one suited for just about every investor.

There are some more aggressive options if you're getting in the retirement game late. One is as simple as it is unpopular - spend less and save more now. Create a budget and put your expenses under a microscope. Another option is to plan to spend less in retirement or begin to devise a plan for part-time work during retirement.

Whichever path you choose the main thing to remember is that you need to do it. Now that you have a little knowledge under your belt, make the call to an investment firm and get started. You'll be better off in the long run and wallet will thank you come April 15.