By Mike Jesowshek, Special AFS Contributor
You may currently be an employee and are afraid to go out on your own and live out your entrepreneurial spirit. You may be avoiding it because you are afraid you will lose retirement options, insurance, benefits, etc.
We see this all the time and it is, of course, a legitimate concern and tough decision. Before I go any further I just want to say that this is normal and you are not alone. Being self-employed is also not for everyone, so you want to ensure you are factoring in your personal and family future goals.
With that being said, I want to take some time and explain to you how these things work when you are self-employed so that this can help you in your decision making.
Retirement Options for Self-Employed
Just because you are self-employed does not mean you cannot plan for retirement. There are actually various retirement vehicles and strategies available to you and often times are heavily considered when doing a tax planning session. Here are some retirement vehicles you could choose to go with:
- Traditional or Roth IRA – Personal Side
- Solo 401k – Business Side and No Employees
- SEP IRA – Business Side and Traditionally Low or Few Employees
- SIMPLE IRA – Business Side with Employees
- 401k – Business Side With Employees
These are the retirement vehicles we see most often with our clients but this is just scratching the surface. The great thing about the last 4 options above is that you can actually get a business deduction for funding a portion of your retirement account.
If you are on the fence about going the entrepreneurial route, rest assured there are retirement options available to you.
Insurance Options for Self-Employed
This is oftentimes one of the biggest expenses a family faces, so it is important this plays a role in your decision. Sourcing your own health insurance being self-employed can be daunting. Options that would be available to you include:
- Medicaid
- COBRA
- State/Federal Marketplace
- High Deductible Plans with Lower Premiums
- Family Coverage Plan
- Private Insurance
- Health Sharing Plans (Not technically insurance)
You will want to vet these various options before “taking the plunge” to see what the cost will be to you and your family and again this is just a start to options available. Whatever your decision is, know that generally stating you will be able to deduct the cost of health insurance on your taxes (which you cannot do as an employee). Note that if you choose a health sharing plan it would likely not be deductible since it is not considered “insurance”.
Conclusion
Deciding whether to go from employee to entrepreneur is a hard and important decision. Retirement and insurance are just one piece of that puzzle. Be sure to also check out our article “How to Handle Taxes as a Freelance Fitness Trainer” to learn other factors you need to take into consideration.
Whichever direction you decide to go, I wish you nothing but success and know that you can be extremely successful as both an employee and entrepreneur. The key is figuring out which path makes the most sense for you and your family.
If you are interested in learning more about this topic or any other bookkeeping or tax-related items, send me a message and I would be more than happy to chat!
This guidance is for informational purposes and does not constitute legal or tax advice. We also recommend you speak with a professional regarding your specific scenario. JETRO and Associates shall not be responsible for any liability related to the guidance herein.
More from this author:
How Fitness Businesses Should Prepare for Year-End Tax Items and Tax Season
Understanding Sales Tax for Fitness Studios
Independent Contractor or Employee - How to Pay Them Correctly
Avoiding an IRS Audit as a Fitness Studio Owner
Mike Jesowshek, CPA is the founder of the accounting firm JETRO and Associates. He has a strong passion for both fitness professionals and technology. He helps provide a digital accounting, bookkeeping, and tax solution for studio and gym owners who are looking to take it to the next level by utilizing modern, cutting edge technology.
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