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IRA for Self Employed ( Roth, Sep, or solo 401k)

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Wise Phenomenal
Wise Phenomenal
30 Apr 2021

Self-employed means you are 100% responsible for everything you do, including your retirement and all those taxes. That’s what they don’t tell you.

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1. Roth IRA + Backdoor
- This is a retirement account that you open and contribute into with post-tax money
- But the problem when you are self-employed, if you start making too much money, you won't be able to qualify for it
- But if you can, I strongly recommend you do

Details:
- Invest up to 6000 per year, and 7000 if you are 50 and older
- You cant make more than 139k of adjusted income or 206k if you are married
- However, there is a way to open one up, its with a backdoor Roth IRA

Backdoor Roth Details:
- The idea is you can open up a traditional ira where you invest with pre-tax money, there is no income limit on this one ( you can invest $6000 annually )
- And when you are ready you can convert that account into a Roth ira
- However keep in mind you will pay taxes because you invested with pretax money ( so keep some cash on hand to pay the taxes and not have to sell any investments )

Ps. Remember to transfer the investments in-kind so you don’t have to sell them.

Pss: if you're wondering why retirement account has caps, it's to keep people that make a lot of money from taking advantage of the system and it makes sense.


2. Simple Ira ( which stands for Savings Incentive Match Plan for Employee)
- This has a mandatory contribution of at least 2% each year
- You can only invest a maximum of $13,500 annual as of 2021
- And by the it changes and increases due to inflation ( and their usually always a catch-up, in this case, you get to invest an additional $3000)

The big problem is:
- The limit of 13,500, I know it sounds like a lot of money but if your business grows more and more
- And you want to take advantage of it and invest more you won't be able to
- However, keep in mind this account is a pre-tax account ( so your money is growing tax-free but you will get taxed in the end )

Ps. You can use this money to buy property ( for investment )


3. Simplified Employed Pension Plan ( Sep IRA )
- And whenever you don’t hear Roth, its means its pre-tax money okay
- This plan is usually best for solo self-employed people
- And you contribute up to $58k per year but its not that simple

Here are the Details:
- You cant contribute more than 25% of employee compensation, meaning in order to contribute 58k you have to make somewhere around 232k
- But its pre-tax so you’ll get taxed later
- And you do get a penalty for taking the money out to early

Tip: remember paying yourself that much money is going to an equal also a lot of taxes ( so keep that in mind, I don’t use this plan )

4. Solo 401k or Individual 401k ( you cant any employees for this one )
- Cool thing is you can max out your 401k and then also invest an additional 25% of your compensation )

Here is the way I use this plan:
- We have a 401k set up that invest 25% of my compensation, I pay myself 48k a year ( so that’s $12k )
- I also contribute the maximum to my Roth 401k, which is 19500
- So in total, I get to invest $31,500
- Now If I wanted to I could invest an extra 26,500 but I would have to pay myself 154k instead of 48k and that’s going to be a ton of taxes and that money is going to be trapped in that 401k for the 30 years

Overall:
- I have a solo 401k and Roth 401k ( I use the 25% to put into the 401k according to the law)
- But I also contribute into my Roth 401k for real tax-free money in the future
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*Some of the links and other products that appear on this video are from companies in which Tommy Bryson will earn an affiliate commission or referral bonus. Tommy Bryson is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. I'm an Accountant but I'm not your Accountant, always review information with your Accountant/CPA and your Financial Advisor.

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