In addition to short-term savings vehicles (see "Part I") and a long-term strategy like CDs and IRA accounts (from "Part II" and "Part III"), you can also use retirement accounts offered by your employer. There are also long-term, tax-deferring or retirement vehicles specifically designed for the self employed or business owner.

Savings Plans from your Employer

Whether you work for a company or a Non-Profit Organization (NPO), your employer may offer retirement plans that can benefit your long-term savings goals. Typically offered as part of a benefits package, your employer matches the amount of pre-tax income you contribute to your retirement account up to certain limits (usually up to 15%); you will own their matched contribution once you are a vested employee.

Some people are hesitant to contribute to company-or NPO-sponsored retirement plan, as they might miss the income set aside. However, there are a number of benefits to participating in an employer retirement plan. MoneyWi$e, a consumer education firm, notes that company-sponsored plans have greater levels of professional fund management than most individuals can afford on their own. Additionally, as a vested employee, your contribution to your own retirement is doubled, since your company is matching what you set aside. And if you end up leaving the company or NPO in which you initiated the retirement account, you can rollover funds into your new employer's retirement offerings, so as long as they have them. Finally, the pre-tax income you do set aside for retirement is left untaxed.

There are two forms of retirement accounts depending on the type of organization you are employed:
  • For-Profit Companies or Firms: 401k
  • Non-Profit Organization or Public Agencies: 403k (have the same benefits as 401k)

Savings Plans for the Self-Employed

Even if you are self-employed or are a business owner, there are still options for long-term savings and retirement related to your employment status. Obviously, you can still open and contribute to an IRA, ladder CDs, or use short-terms savings strategies. But you can also take advantage of tax-deferment or company profit sharing (your own company's), but in ways different than the traditionally-employed.Here are a few examples from the FCIC:

  • Profit-Sharing Plans: If you are an employer, you share profits with employees based on their salary or wages
  • Employee Stock Ownership Plan (ESOP): Instead of stock offered to investors or held by executives, ownership is shared among the workers of the company. If you are a business owner, you can give yourself and your assistants added empowerment, as they will own the business along with you
  • Simplified Employment Pension Plans: Used by microbusiness and/or the self-employed, it is a long-term savings vehicle with tax deferment capability
  • Solo 401k: These retirement account allow the greatest limits on tax-deferred retirement contributions. Since you are self-employed, you can contribute as both an employer and employee.

Please contact your financial institution or advisor for more information. For government savings vehicles, review "Part V".


References

Moneywise.Help Your Savings Grow

FCIC.Financial Fitness For The Self Employed