Retirement for the self employed

[ivinsfan]

FWIW, the accountant I mentioned is not part of a large firm. He has many decades of experience.

I really don't see there is much difference. While our situations may be different, I think my example shows how one accountant may have a different take than another. Any accountant works for their client, not the IRS. There are always gray areas where interpretation by both parties is necessary. Whether that accountant openly says an action is questionable or not, they are often making those choices. I do get having an accountant to ensure things are done correctly. If I were in your situation, after reading some of the above responses, I would definitely seek at least one alternative professional opinion, if only to confirm I am doing things right.

I don't know if I agree with your comment about the Roth..while on ACA the money saved by having an extra deduction makes that a tougher decision.

 

[Aerides]

If you're using a tool for your business and have proof that you've made money with said tool, it's pretty hard to not be able to justify it as a legit expense even if it's used for personal stuff as well unless we're talking about a vehicle or something.

Not sure about that. Once Personal Use enters the equation, it's much harder to justify. I have a small business and I err on the side of "what can I justify with no sweat if and when I am sitting across from an IRS agent?" - so only pure business stuff for me.

But anyway...aside from all that, have you checked what SS you'll receive? Might be time to consider making the business a side gig, and suck it up for a decade or so with an employer/day-job/benefits, especially if you haven't met the minimum quarters.

Think like your 70 year old self, not your 40-something one.

 

[North80]

OK sure if you say so...you ignored the most important part of my comment which was buy less stuff for your business and fund a HSA and IRA to lower your income for ACA purposes because those items are still your money.

I did?

You're mistaken. Thank you for the advice.
I definitely did not ignore what you said.

 

[North80]

Not sure about that. Once Personal Use enters the equation, it's much harder to justify. I have a small business and I err on the side of "what can I justify with no sweat if and when I am sitting across from an IRS agent?" - so only pure business stuff for me.

But anyway...aside from all that, have you checked what SS you'll receive? Might be time to consider making the business a side gig, and suck it up for a decade or so with an employer/day-job/benefits, especially if you haven't met the minimum quarters.

Think like 70 year old self, not your 40-something one.

I actually did that yesterday and was shocked. My benefit at 67 as of right now is $1,437 per month. It was interesting looking at my yearly income all the way back to the 90's. I had a few years with zero, while I had one year in my late 20's where I made over 50k.

 

[North80]

Not sure about that. Once Personal Use enters the equation, it's much harder to justify. I have a small business and I err on the side of "what can I justify with no sweat if and when I am sitting across from an IRS agent?" - so only pure business stuff for me.

But anyway...aside from all that, have you checked what SS you'll receive? Might be time to consider making the business a side gig, and suck it up for a decade or so with an employer/day-job/benefits, especially if you haven't met the minimum quarters.

Think like your 70 year old self, not your 40-something one.

This is all good advice.
Thanks for the response.

 

[Time2]

Interesting discussion. I know guy who ran his own business. His accountant has "approved" or even "suggested" doing things that he knows are not quite Kosher. The accountant says, you are a small business, and this or that won't raise any flags. It sounds to me like you accountant is of the same cloth.

I couldn't live with that. And I didn't. Together, he and I do have a small business together. I was for a while, president of said company. The same accountant said I should send invoices to the company instead of for work I've done instead of pulling a salary in order to reduce the company tax burden. i.e. I should work as a consultant while being an officer. The laws say officers are "deemed employees" and as such, cannot be 1099 workers for the same company. While the accountant said don't worry, it won't raise any audit flags, I didn't bite.

Perhaps you might run your scenario thru another tax accountant to see how much yours is "bending" the rules. Maybe I'm wrong, but your accountant is not the one who will be called in to explain your tax filings by the IRS.

When we had a accountant doing our year end taxes, he was a lot more aggressive that I was. There was even one year where I found he called one of us Blind?

 

[Time2]

I'm self employed for 5 years now & take few risks in writing off a lot. Taking mileage vs actual, % of home office deduction (simple write off). Reducing expenses from gross accounting records. Simple keeps me doing my own taxes (less expense). Do some small tool write offs, but probably less than 2% of net annually.

Point is, simple is good for us and taxes are not a huge problem imo vs buying crap for a write off. Even @ 24% federal, it's less than the amount you're spending for the write off. I just don't want the hassle.

Back to the basic question, Roth IRA is the best thing for your tax bracket. HSA is another. Starting small may motivate you to become a saver. I didn't get that bug until I got married and she was a saver. Now I'm the crazy saver of the 2. Having a partner to be accountable to & help assist you too is a huge plus too. If they have a job to get health insurance, even better.

Moving is a big jump, but may help with the home ownership. TX still has affordable prices and a decent construction economy. Getting a name is easy if you are just mediocre.

I'm not sure it makes much difference whether he uses a Roth or tIRA, He will most likely be paying tax into the second bracket, now and in retirement. With the caveat that tax brackets will probably go up.


As Far as the saving bug, it was the same with us, wife was the saver and in 3 months we had saved more that I ever had in my life, I've been on that wagon ever since.

 

[Time2]

OK sure if you say so...you ignored the most important part of my comment which was buy less stuff for your business and fund a HSA and IRA to lower your income for ACA purposes because those items are still your money.

That's what I tried to get across in post 54.
I'm convinced that the OP is turning a corner on his thinking, hopefully that will result in actually savings that he can invested for his future. Op, note meaningful growth is slow in the first few years before compounding starts working.
When the stock market is cooperating and you are adding contributions you can expect a double about every 6 years. $100k is $200k then $200k is $400k. Yippee what a ride!

 

[North80]

That's what I tried to get across in post 54.
I'm convinced that the OP is turning a corner on his thinking, hopefully that will result in actually savings that he can invested for his future. Op, note meaningful growth is slow in the first few years before compounding starts working.
When the stock market is cooperating and you are adding contributions you can expect a double about every 6 years. $100k is $200k then $200k is $400k. Yippee what a ride!

I've definitely turned a corner in my thinking.
Been reading and doing research on the advice you fine people have been giving me in this tread all morning. I plan on listening to some investment podcasts while at work in the coming months.

First thing I'll be doing is building up my savings for an emergency. That will give me some more time to plan and increase my knowledge on all of this stuff.

Thanks for the much needed advice!

 

[Sunset]

When we had a accountant doing our year end taxes, he was a lot more aggressive that I was. There was even one year where I found he called one of us Blind?

I could just see you at the IRS interview... "It's a Miracle !! "

 

[Sunset]

I've definitely turned a corner in my thinking.
Been reading and doing research on the advice you fine people have been giving me in this tread all morning. I plan on listening to some investment podcasts while at work in the coming months.

First thing I'll be doing is building up my savings for an emergency. That will give me some more time to plan and increase my knowledge on all of this stuff.

Thanks for the much needed advice!

I've really appreciated your candor.

Remember, your accountant is not the one who will be paying the fines, or serving time, especially if the accountant only verbally agreed to various write offs.

 

[Fermion]

If you are in your mid 40s and in good health, you might look into getting a job working for the railroad or something similar. They still have pensions and the pay is decent. My brother did that at age 43 and he is now nearing 65 which I guess is where he will retire and I think will have a decent pension.

 

[North80]

If you are in your mid 40s and in good health, you might look into getting a job working for the railroad or something similar. They still have pensions and the pay is decent. My brother did that at age 43 and he is now nearing 65 which I guess is where he will retire and I think will have a decent pension.

I really love working for myself because of the freedom it gives me, but believe me when I say that I've been thinking about a career change for a bit in regards to something that will put me in a much better position for retirement.
My great grandpa worked for the railroad, and he had a killer retirement. Him and my great grandma traveled the world in retirement.

Talk about a guy that had his ducks in a row. He grew up during the great depression and then fought in WW2. He came back after the war and owned a home mortgage free in Los Angeles before the age of 30. He retired from Sante Fe railroad in his late 50's, and traveled until his mid 70's. My dad used to say that the guy didn't believe in debt. Like when he got a new car when my dad was a little kid in the 60's, he went down to the dealership with cash in an envelope lol. Anyways, yeah, pretty crazy to retire in your 50's and have finances like that. He must have had a decent pension.

 

[Sunset]

If you are in your mid 40s and in good health, you might look into getting a job working for the railroad or something similar. They still have pensions and the pay is decent. My brother did that at age 43 and he is now nearing 65 which I guess is where he will retire and I think will have a decent pension.

+1

My friend was a framer, loved it, fit as a fiddle, great to work outdoors... until he aged a bit.
He changed to a govt worker job, with pension, working in A/C building not in the rain.. Health/dental/paid vacation time/etc..

Doing hard physical work is only fun for young bucks.

 

[NgineER]

Welcome to the forum - great advice so far!

I'd stuff the Roth first; your contributions can be withdrawn penalty free (but it would be best to keep them in there).
Stop buying stuff you don't need, my DW was really good at this, and it has paid dividends.
I'd personally look into buying a distressed property, a duplex or something similar to be able to rent out. You'll only have to put 5% down if you live in it vs. an investor loan rate and 25% down.

Good luck, listen to the advice here and you'll be in good shape.

 

[pb4uski]

^^^ While I think the Roth is a great tool, for the OP and a low/middle income friend I actually prefer a taxable brokerage account. No constraints on taking money out and if you are payng no or low taxes anyway then no particular benefit from a Roth.

I've definitely turned a corner in my thinking.
Been reading and doing research on the advice you fine people have been giving me in this tread all morning. I plan on listening to some investment podcasts while at work in the coming months.

First thing I'll be doing is building up my savings for an emergency. That will give me some more time to plan and increase my knowledge on all of this stuff.

Thanks for the much needed advice!

For the OPs emergency fund, I would suggest a taxable brokerage account with Schwab or Fidelity, and then put the money in a money market fund currently paying north of 5%.

 

[North80]

I'd personally look into buying a distressed property, a duplex or something similar to be able to rent out. You'll only have to put 5% down if you live in it vs. an investor loan rate and 25% down.

Good luck, listen to the advice here and you'll be in good shape.

A duplex is about a million dollars around here, and if you find a property like that, you'll be in a bidding war with a reality company or a construction firm with investors.

A distressed property is the same thing. You have to have cash for something like that around here because the housing and rental crises is so bad.

One of my customers lived in an old Victorian style home that he purchased in 1980 for 35k while driving a forklift at a Lumber mill. He just passed away and his daughter has it on the market now for 1.3 million.
Granted, it's a beautiful home that he put a lot into over the years, but that's just crazy.

Yeah, I've been doing research the last couple days in regards to a landing spot to start a new life. Time to leave the west coast. I'm thinking about relocating to Main or New Hampshire.

 

[Calico]

A duplex is about a million dollars around here, and if you find a property like that, you'll be in a bidding war with a reality company or a construction firm with investors.

A distressed property is the same thing. You have to have cash for something like that around here because the housing and rental crises is so bad.

One of my customers lived in an old Victorian style home that he purchased in 1980 for 35k while driving a forklift at a Lumber mill. He just passed away and his daughter has it on the market now for 1.3 million.
Granted, it's a beautiful home that he put a lot into over the years, but that's just crazy.

Yeah, I've been doing research the last couple days in regards to a landing spot to start a new life. Time to leave the west coast. I'm thinking about relocating to Main or New Hampshire.

Have you lived in California your entire life? Have you ever spent time in Maine or New Hampshire in the winter?

I ask because back in 1986 I was living in NC, and decided that I wanted to be closer to family, so I moved to Maine. I lasted two years, and I had spent my entire childhood in New England, shoveling snow etc., so it's not like the cold was a foreign concept to me.

Suffice it to say that the winters in Maine are very, very long. I now live happily in NC again, and haven't shoveled snow in decades.

 

[North80]

Have you lived in California your entire life? Have you ever spent time in Maine or New Hampshire in the winter?

I ask because back in 1986 I was living in NC, and decided that I wanted to be closer to family, so I moved to Maine. I lasted two years, and I had spent my entire childhood in New England, shoveling snow etc., so it's not like the cold was a foreign concept to me.

Suffice it to say that the winters in Maine are very, very long. I now live happily in NC again, and haven't shoveled snow in decades.

I live in Washington, not California.

While it's not as cold as Main, it's definitely not sunny most of the year like a lot of California.

I've lived all over, including places like Colorado and Montana, where it's actually colder than Main.

The problem here is that so many people from California have invaded Oregon and Washington, that even if I relocated to a far less expensive part of the Pacific North West, it would still be very expensive compared to most other parts of the country.

I don't think I could do the South or Midwest as far as culture. I'm a single guy, and dating would be pretty brutal for me in those parts of the country outside of certain metros. I've thought about North Carolina or Texas, as they're a bit more culturally aligned to the west coast than some place like Alabama or Kansas. However, I think I would do better in the north East or even in some the rust belt states like Ohio or Michigan culturally.

Main seems to have pretty reasonable home prices even in the Metro areas, and I love the look of the New England states.

 

[Calico]

I live in Washington, not California.

While it's not as cold as Main, it's definitely not sunny most of the year like a lot of California.

I've lived all over, including places like Colorado and Montana, where it's actually colder than Main.

My mistake, sorry. For some reason I thought you were in CA.

 

[imnontrad]

Skip the annuities, precious metals, etc. Make saving for retirement your priority - and in low cost index funds or ETFs (VT, AVUV, etc). Talk with your CPA. You should be able to sock a lot away into a retirement account with your business matching your contribution - which will decrease your current taxes too. But by keeping your taxes low with deductions, you are also ensuring you will have a lower SS benefit later on.
As far as relocating - is your business movable or will you be selling and starting over? And yes, relocating and cutting your expenses to the bone could turn everything around.

 

[target2019]

I don't know where to begin. Maybe this.

If you live in a HCOL area, then gross income of 100K sounds possible. If you move to a LCOL area, expect the gross to be lower. You'll be entering a market where competitors have advantage. How will you break through with customers?

I think what you're saying is that you have 100K sales, 75K expenses, and 25% business profit. If the business is remodeling, 25% sounds low to me, and probably appears so to the IRS algorithms. In your favor they have bigger fish to fry. Not in your favor, at some time in the future an audit may happen.

Whatever your profit, you need to save for retirement and other things that happen.

Over 25 years of self employment I held 100K cash for a business downturn. But I always invested in a SEP-IRA, and later in that and a Roth.

I used to bounce certain deductions off my brother, a tax preparer. "I'm not going to jail for you" was a memorable response.

 

[Maidensong]

North80, what I'm hearing, more than any dissatisfaction with your finances or future retirement, is loneliness in your life. The past was a blast, but you're looking into the future and it seems empty. As long as you look at a serious relationship as someone to take care of you, it will continue to be so.

We form meaningful connections when we invest ourselves in others, when we care about their lives as we do our own. Your fear of the Midwest seems mildly amusing to me. One of the things we're known for is being taught as children to always take the smallest piece, to defer to others. It may seem counterintuitive, but that attitude creates a sense of community that stands us all in good stead when times are tough.

I see your issues as less of a money problem and more of a "I know there should be more to life than this" problem. It speaks well of you that you recognize this. I encourage you to look outward to others, to make genuine friends not just running buddies, to explore your spiritual life.

There's more satisfaction in those things than a bulging bank account.

I wish you well.