It has always been a personal goal of yours to own your own business and retire at an early age. To help fund the latter you have been an active participant in your employers' 401k plan for years. But since you are planning on becoming your own boss, you dont know how to continue to plan for your retirement dream without the help of Uncle Sam.
Over the years, employers have been offering their employees opportunities to plan for their retirement courtesy of 401k plans. 401ks are a type of savings plan offered by employers where a worker can opt in to have a portion of their income diverted into an investment account. This money is tax-deferred until retirement. Many companies also offer their workers additional monetary incentives, such as matching the employees' investment contribution to the 401k plan.
Any business going through the proper channels can set up their own 401k plans and that includes the self-employed. Self-employed individuals who are their own boss in private corporations can legally set up this kind of program, however it is advisable to speak to your tax professional about taking advantage of this program or inquire if a Roth IRA would be a better choice for you. Until 1986 a government entity could also set up 401k plans, but that is no longer the case.
401k plans originally were designed as an enticement benefit for executives. However, over time 401k plans became a popular tool for the work force as well, because it had greater contribution flexibilities than Individual Retirement Accounts (IRA). Plus, the company match made it even more valuable as it is a way to get additional free money from your employer.
401k plans are a great way to encourage planning for retirement. If you are still working for the man, make sure to read their offering carefully before opting in. Taking advantage would certainly benefit you in the long run. For those who are self employed, it is a great way to shave a little bit of your earnings off the top and stow it away for the future.
