State government employee so out goes into a 457 in lieu of social security plus a little more.
Zero - I don’t have one and have never had one. I don’t expect I will have one in the future either. Ah the joys of being self-employed.
Missed the edit window. I am actually surprised at how many people have 401k plans. Before I was self-employed, I worked for 3 companies that every American has heard of… and two that you have not heard of. None of them offered such plans.
It is very easy to create a self-employed 401K. Most decent brokerage houses offer them. Costs a few bucks to set up and you end up having to file one extra tax form each year. Easy. There is also things called SEP/IRA and SIMPLE. These are even easier to administrate.
And all these are in addition to plain old IRA & Roth IRAs that anyone can have.
The benefits of the various flavors of self-employed plans vary depending on the income level you have and the amount you can afford to salt away.
If you’re profitable and are routing money into after-tax savings now, you certainly should take the time to learn about these other ways to have Uncle Sam fund some of your savings.
They don’t work very well with Foreign Income or overseas residency from what I can gather. I have earned a lot more by buying rental properties than I have ever made in the stock market. I don’t think tying up money in a 401k and putting it in stocks would be a good move for me. Even if it is pre-tax.
That’s certainly your call to make. And I know nothing of how all this applies (or doesn’t) to expat situations.
I was concerned from the wording of your earlier post that you simply weren’t aware of these various options for self-employed tax-deferred (or tax-exempt) savings.
LSLGuy,
Just out of my curiosity, for stateside options for the self-employed - how much flexibility in investment choices do they have? Could someone theoretically set up an account and use the money to invest in rental properties (directly, not via REITs) for example? So long as the profits stayed within the retirement accounts would that be kosher?
I’m now retired, but I contributed 6% to my pension plan (my employer contributed 9%.)
I’m definitely not the uber expert on this stuff. But I’ll share my personal experience, limited though it may be.
The examples I have dealt with personally are SEP/IRAs at a brokerage & brokerage-managed individual 401Ks. For those we could invest in anything the brokerage could get. So ordinary stocks, preferred stocks, bonds, mutual funds, ETFs, PTPs, REITs, etc. This included non-US issues.
My supposition is that the SEP/IRA could be set up outside a brokerage and invest directly in real estate and collectibles such as art, just like a conventional IRA can. But that’s informed speculation, not citable fact.
An individual 401K plan needs what IRS calls a “sponsor”. The paperwork to become a sponsor is impractical for individuals. But once a brokerage or other financial services firm becomes an IRS-approved sponsor, they can sponsor separate plans for individual customers almost without limit.
So a brokerage-based individual 401K is IMO unlikely to support real estate or collectibles. I don’t know of an obstacle to a commercial real estate entity or boutique financial services firm setting itself up as a plan sponsor for real estate-oriented investments. But I’ve never seen (nor looked for) such a thing.
I also have no clue what if any extra complicators are involved if the taxpayer is an expat or is using non-US based income to fund all this. That’s 100% beyond my experience.
I will ask my advisor if he has any better knowledge on these points. If I learn anything interesting I’ll post here.
Not to worry … it is just curiosity. It does not apply to me. I am part of a larger company and we have a “safe harbor” set up. How that actually works is beyond me though.
There are companies that allow non traditional investments from your 401k typically called self directed plans. There are some limitations but we used one to partially finance my distillery.
I contributed to the cap each year which right now runs about 12%. I also max out an IRA. My goal is 6 million in non real estate assets at retirement so I need to invest lots and early.
12% and my employer contributes 9% of my salary.
A bit over 12%. My employer only matches the first $1200/year one for one, but then they throw in an extra safe harbor and profit-sharing contribution (the latter depends on how well they have done that year).
I just opened a Roth IRA with a minimal contribution; not sure how much extra I will throw in beyond that.
I guess it’s $0. Nothing comes out with each paycheck.
I’m self-employed and I always look at all my numbers at the end of the year and decide how much to contribute. As an annual amount, it’s about 4% that went into my SIMPLE IRA.
But it also doesn’t all go into a qualified retirement plan. Another 3% went into investments that I think of as retirement funds.
Think of a qualified retirement plan as a bucket. The limitations on the contents of the bucket are not dependent on the type of plan, but on the bank (custodian) that controls the assets in the bucket.
So… most big employers have 401k plans with a limited set of investment options because it’s easier/better for investing purposes. For example, mutual fund fees tend to be about 5% if you have less than 50,000 in assets, but if a company can accumulate $1 million in assets (between all participants) then the fee drops to 1%. Thus, the incentive for a company to give you a limited set of options.
But once your funds are free from a big employer (whether self-employed or just having rolled the funds over), there are all kinds of options out there. Different banks offer different options. It’s not so different from a brokerage or a savings account, in that you’re choosing which of the bank’s products to invest in. A self-directed account is the term for one that gives you maximum control and you could use that for something like real estate. (But again, the self-directed option is not describing the type of retirement account, it’s describing the type of investments allowed by the bank.)
6% to take advantage of my company’s match
I work for state government and contribute to the state retirement plan. Contributing is pretty much mandatory and they take out 6% every pay period. There is an employer match though.
Self employed, so no paycheck. I send the max at the end of the year in most years, about $24,000 I think.
I’m retired and I just went back to work. I’ve maxed out the 401k - for my age, that’s $24K per year. My employer kicks in 3%. My husband does the same. Thanks to my pension, we can afford to do this and not affect our lifestyle.
Most of the rest of my earnings go into savings, so that when I really, truly retire in about 3 years, we’ll have a nice pile of money for several trips we want to take. But I sure wish I’d contributed more when I was younger - it’s probably the worst financial decision I made - even 1% more in those years would have made a huge difference now.
I contribute up to the max % that my company matches (3%). They also have a pension plan.
I also have an IRA that gets contributed-to as well.