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Considering retirement plans as self employed health insurance

Considering retirement plans as self employed health insurance

Being oneís own boss is perhaps a dream nurtured by almost everyone. The pleasantness of the dream though is lost the moment an individual thinks of the dreaded areas of which health insurance happens to be foremost. But then like in everything else, self- employment too allows you to plan for your future and plan for it well. Getting a retirement plan is the best you can do for your old age considering that the former usually offers a number of tax advantages. Another highlight of a retirement plan is the fact that it adds to your savings over the years and at the end of the day is an excellent cost- cutting option.

Self- employed persons have three sources of retirement plans at their disposal- SEP's, Keogh Plans and Roth IRA's. While the first two are earliest options, the third one is the latest addition to the list. The good thing about all three options is that they let you make contributions to your account on a tax- free basis. SEPís or Simplified Employee Pensions are the most generic retirement plans available to self- employed persons. Utilizing the IRA concept, SEPís give you the opportunity to contribute about 15% of what you earn to your earnings (if you also work in your own organization) and 13% otherwise. Presently, the amount you can dump into your SEP account is not more than $24, 000. The rate of contribution though varies from year to year which means you can contribute less during times of cash constraints. Amongst all three retirement plan options, SEPís are the easiest to handle.

Retirement programs of a corporate flavor are presented in a different manner to represent what we know as Keogh Plans. This kind of retirement plan further has two subdivisions- defined- benefit pension and profit- sharing plans. As for contributions, Keogh profit sharing plans do not let you put in more than 20% of your earnings into the account. Like SEPís, in this case too, you have the option of contributing less under certain circumstances. Lower contributions are allowed only if youíre able to come up with the right documents (stating why you are actually a special case). In case of defined pension benefit, you have to contribute a fixed amount every year. This figure is decided upon with help of actuary calculations.

Roth IRAís, the newest retirement plan type, has the best of both worlds. All that you contribute to your account is non- deductible in nature. But whatever accumulates in the account grows without taxes being slammed on it. Introduced in 1998, Roth IRAís has performed consistently to save members from tax burdens. For individuals, contribution usually stays at $2000 which becomes $4000 in case of a family plan. A second type of IRA retirement plan is also available which is called deductible IRAís. Usually people opt for this one when they do not have other options to fall back on.

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