This year, I set a goal (not in my actual goals, but maybe I should add it) of making regular monthly or quarterly contributions to my retirement and investment accounts. In the past, I’ve let my money sit in a saving account so that I wouldn’t have to pay taxes on earnings. I love Roth accounts, but I went a little too far and let the money sit in an extremely low interest rate savings account so that I wouldn’t have to pay taxes on my earnings.
Since I have a business (I filed as an LLC a few months ago), I am eligible for an individual 401(k). I looked at a lok options, but ultimately, I went with the individual 401(k) because of the high limits. It allows me to contribute 100% of net adjusted business profits, up to $17,000 in 2012, as a salary deferral contribution, plus an additional 20% of the net adjusted business profits for the company as a profit sharing contribution. The totalI won’t give you specific numbers because that’s not my style, but it gives me the opportunity to contribute more than any other IRA or 401(k) option.
And since I’m young, I opened a Roth Individual 401(k). This lets me contribute after-tax money to the account. The salary deferral portion can be either Roth or Traditional (or a combination), while the profit sharing portion must be made as a traditional (pre-tax) contribution.
Once I knew what I wanted to do, I went onto Vanguard (where I do all my investing), and checked out there paperwork. There was a large packet to fill out, but most of it required basic information about me and my business. I took 30 minutes to fill it out, mailed it off, and a week later I got notification that the account had been set up for me.
I truly thought the process would take a lot longer, there would be more forms to file, and there would be some complications. My only regret is not having done this a year earlier. Instead of a silly $5,000 limit on a Roth IRA, I can contribute way more!
For any of you self-employed individuals, what type of retirement accounts do you have?