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Young and Self-Employed: How to Plan for Retirement

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January 5, 2016

With a third of self-employed Millennials running start-ups, they may be the most independent generation to date. There is a price to pay, though, for being your own boss. Entrepreneurs forgo regular income and traditional-employment benefits such as company-sponsored retirement plans with regular contributions.

And as a recent TD Ameritrade survey revealed, self-employed Millennials have larger retirement goals than their Baby Boomer parents:

Millentrepreneurs: Self-employed Millennials

MILLENTREPRENEURS: A FORCE FOR THEIR FUTURE.

Self-employed Millennials have seized control of their retirement by working, living, and saving on their own terms, according to a recent TD Ameritrade survey.

So how can they get there when the majority (70%) surveyed are anxious about saving money for retirement from the earnings of their businesses? The good news is, there are a lot of resources available to ease this anxiety. Here are three tips to get self-employed Millennials started to ensure long-term goals don’t get lost in their entrepreneurial rush to success:

1. Research retirement plan options
There are a variety of individual and small business retirement plans available depending on what stage your business is in, how many employees you have and whether contributions will play a part:

Solo 401k
Businesses that are eligible for a Solo 401k include sole proprietorships, partnerships, and incorporated businesses. These plans allow business owners to contribute to the plan in the capacity of both employer and employee, providing solo owners or small executive teams the ability to maximize personal retirement contributions as well as take advantage of business deductions.

SEP IRA
A SEP (Simplified Employee Plan) IRA is a retirement plan for self-employed business owners or corporations with few employees. SEP IRAs can provide a core benefit to employees, and they also tend to be easy to set up and administer. It may be especially beneficial to research a SEP if your business is newer or has variable profits.

SIMPLE IRA
The SIMPLE IRA is a retirement program that offers an employee a salary-deferral contribution feature along with a matching employer contribution. Research a SIMPLE IRA if your business has established a steady income and you have employees who want to make contributions to a retirement plan.

Profit-sharing
A profit sharing retirement plan may be a good choice for a business owner who has variable profits but wants to reward long-term employees by passing along a percentage of the company’s profits. This type of plan also gives the employer flexibility in determining annual contribution amounts.

2. Consider professional financial advice
Twenty percent of Millennials surveyed have received professional financial advice while 12 percent have used an online, automated tool to create and/or manage an investment portfolio. Whether you meet with a professional or take a more hands-off approach, a mix of digital and human guidance could be a solution. A managed portfolio could be a way to get started.

3. Remember to think long-term
Investors in their 20s will have dozens of financial goals over the course of their lifetime—starting a family, buying/selling property, perhaps selling their business venture and even starting a new business later in life. There is one important aspect to consider you have when you’re young when it comes to planning for long-term goals ... time. Young investors are in the unique position of being able to ride the market cycles over the long-term. It’s all about understanding that the return on your investments—the gains and the losses—add up over time to potentially grow what you’ve got.

Self-employed Millennials are independent, that’s for sure. But with a little help from plans designed specifically for them or professional advice, they can be independent and hopefully successful not only in business but in reaching long-term investing goals as well.