Chapter 10
Investment Options When You Work From Home
Though many people willingly choose to work from home or are self-employed, a lot of them don’t plan for the future and end up saving close to nothing for their retirements.
Financial issues may at the time seem too overpowering, but having some retirement plan is essential for everyone.
There any many investment options that are designed specifically for those working from or running small businesses from home to minimize tax burden and growing a fund for retirement.
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SIMPLE IRA
The SIMPLE in SIMPLE IRA stands for ‘Savings Incentive Match Plan for Employees’, while IRA means ‘Individual Retirement Arrangement.' If you have up to 100 employees, you can invest in a plan through this IRA.
As an employee, you can contribute up to$13,500 per year, while as an employer, you can match up to 3%of your net earnings from self-employment.
A 25% penalty fee is applied if you withdraw from SIMPLE IRA within two years of opening it, so putting money in it ensures that it will be there for the long run.
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Traditional or Roth IRA
Traditional or Roth IRA is considered to be a good start for those looking to invest.
Anyone having some form of earnings or income can contribute to this IRA.
However, you can only contribute $6,000 per year or $1,000 more if you’re 50 or older.
Roth IRAs have a limit, though, so if you earn too much money per year, you cannot contribute to Roth IRAs.
As for taxes, with Roth IRA, you cannot avoid taxes before, but you can avoid them after you take it out in retirement.
For traditional IRA, you avoid paying taxes on the money you put into it before as well.
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SEP IRA
Sep stands for ‘Simplified Employee Pension,' and this kind of IRA is popular amongst small businesses and their owners.
Once your business starts doing well, this IRA helps lower your tax accountability.
The money put in isn't taxed until you withdraw it, and thus, it lets you reduce your income for taxes.
As much as 25% of your net earnings can be put into SEP IRA every year.
The plus point of having a SEP IRA is that you can fund this IRA after you have paid your taxes, so if you have earned more that year, you can contribute more as well.
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Individual or Solo 401(k)
If you are independent, this is a good option for advanced contributions.
Individual or Solo 401(k) comes with two options as well, as the employer or as the employee.
As the employee, you may contribute as much as 100% of the income you have earned, with the maximum set at $19,500 per year.
If you're an employee of age 50 or above, the maximum is $25,000 per year.
As an employer, it is similar to as much as you contribute to a SIMPLE IRA.
You cannot contribute more than your income as a self-employed worker, but you can give an extra percentage of your net income, with the maximum at $57,000 if you’re under 50 and $63,500 if you’re above 50.
The individual or Solo 401(k) can be used as a Roth version as well, which means you can put in money after paying your taxes, so tax does not apply to the money you withdraw later as well.
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Brokerage Account:
A Brokerage Account makes use of a brokerage firm where an investor deposits money with a licensed firm that places trades on behalf of the investor.
Even though the firm puts in the work, the revenue belongs to the investor.
The investor can claim any funds brought in by the account but will have to pay taxes on the income.
There are no restrictions on investments in a brokerage account, so it is a good choice to put investments in without any limitations or penalties.
A brokerage account can give you access to a wide variety of different investment options such as stocks, bonds
and mutual funds. The money may be deposited through a check or transferring money from your savings account.
Once the money has been deposited, the money can be used to buy different types of investment securities.
Since your brokerage firm is carrying out the buying and selling, you will be required to pay a certain amount of commission to them.
Investing decisions should not be taken lightly, as even a small mistake can prove to be quite costly in the long run.
It is recommended to hire or consult a financial advisor before any such investment decisions are made.
Due to the complexities of most of the rules, opening accounts and avoiding penalties will be made easier with the help of a consultant.
Invest wisely so you can have a smooth time working from home and don't have to worry about the present and the future!
