Think you can’t retire as a creator? Think again!
Retirement might seem out of reach for many creators, but that doesn’t have to be the case.
Worried that as a creator retirement may not be in the cards for you? Think again! Business manager Belva Anakwenze is here to guide you through all the retirement accounts and options available to you.
This video is intended as knowledge-sharing, not tax, financial, or legal advice. Always consult with tax/financial/legal professionals to determine what's best for your business.
It may not seem like it now, but I promise the day will come when you want or need to retire. For a lot of creators, retirement can seem like a distant pipe dream, and frankly, not quite as important as your near-term obligations, like paying bills. But I'm gonna show you that planning for retirement is possible. It doesn't matter if you're 20 years old or 60 years old, it all starts with understanding the retirement options available to you.
I'm Belva Anakwenze, and I work with creators every day, helping them with financial and business decisions, including thinking about retirement.
And remember y'all, this show is for informational purposes only. Everyone's financial situation is different, so consult with legal and financial professionals to make sure you've got the full picture for your business.
Before we start, let's get something out of the way. Investing does have risk. Your money is not insured like it is in your bank account. I'm sure you've heard about the fluctuations and even crashes in the stock market. These are all true, but over time, the stock market tends to rise, despite moments of losses.
Okay, on to some tips for retirement. First, start today. The longer your money is invested, the more time it has to ride the upward trends of the market and overcome some of those ups and downs short-term.
Second, work on getting the funds invested into a diverse portfolio. Now, this might mean a mutual fund, or a good mix of stocks and bonds, index funds, and other investments. By diversifying, you won't have all of your eggs in one basket. That'll help you minimize losses if one investment performs poorly.
Third, maximize your investments. To understand how best to do that, you'll need to understand the different tools available for you. There are three major investment strategies: pre-tax, post-tax, and taxable. Using these strategies, you can create accounts to hold your investments like stocks and bonds, and even your real estate. This will help your money grow over time.
"For a lot of creators, retirement can seem like a distant pipe dream, and frankly, not quite as important as your near-term obligations, like paying bills. But, planning for retirement is possible."
Of these three, only pre-tax and post-tax accounts have special tax advantages. These accounts are designed specifically for your retirement, so let's focus on these two.
First, Post-Tax Accounts. For contributions to a post-tax account, you'll pay taxed net money when you contribute it now, but when you pull those funds out at retirement age, all of the money taken out of the account will be tax-free.
Next, let's talk about Pre-Tax Accounts. This is the opposite. You put money into your retirement account, and you may be eligible to not pay tax on that money now, but you will pay tax on it all when you make the withdrawal during retirement. Deciding whether or not you should go with pre-tax or post-tax contributions really depends on whether or not you'll think you'll be in a higher or lower income tax bracket when you retire. It also depends on what federal and state income tax rates will be during your retirement years, relative to today.
It's hard to guess these future factors accurately, so it's generally a good idea to have a good mix of pre and post-tax retirement investments, but again, speak to a financial advisor to see what makes the most sense for you.
Now let's discuss some of the pre-tax account types available to you. You may have heard of a 401K or a 403B, which is what non-profits use. These are usually offered by an employer, but if you have an LLC or a corporation, you may be able to create one for yourself and your business. Since a 401K is an employer-sponsored retirement plan, the employer is responsible for having the account administered. You as the employee will agree to have a certain amount or percentage of a salary invested into the retirement plan, up to an annual limit that is set each year.
Your taxable income will be less than the annual amount that you contributed during the tax year, but remember, you will pay tax on all of the funds when you pull them out in retirement since this is a pre-tax account.
Another pre-tax account is called an Individual Retirement Account or an IRA. As the name implies, this is managed by you, so you decide when you make the deposits and how the funds get invested. An IRA also has an annual limit set each year and your income could be decreased by the amount you contributed, but at a certain income threshold, this will get phased out. You can contribute up to the IRS limit for both your 401K and your IRA in the same year.
Now, for independent creators without a nine-to-five job, there is also something called a SEP IRA. Like the 401 and the traditional IRA, the SEP IRA does have an annual limit, but this limit is often significantly higher. Generally, if you're a gig worker filing a Schedule C, an individual with an LLC, or an S-Corp, you qualify to use a SEP IRA. But the rules for qualifying vary greatly, so make sure to discuss with your financial professional.
As your earnings grow, there are even more ways to set aside funds for retirement in pre-tax accounts, like cash Balance Plans, Defined-Benefit Plans, Profit-Sharing, and more. You know the drill. Talk to a financial pro to find out what could work for you.
Now onto some post-tax accounts. First, there is a variation on a 401K which I mentioned earlier, where you can make post-tax contributions. That's called a Roth 401K. This isn't super-common, and again, it would be typically offered through your employer.
Next, a variation on a traditional IRA; this is called a Roth IRA. This is simply an individual retirement account where you pay tax on the money today, but you will not pay tax on the money or any gains when you pull it out in retirement. The Roth IRA has the same annual contribution limit as the traditional IRA, but there's a caveat. The higher your taxable income goes, the more the IRS reduces the amount you can contribute, so be sure to pay attention to avoid penalties for over-contributing.
But there is a workaround. You first put your money into your traditional IRA, with no tax deduction on your income, then you convert those funds into your Roth IRA. When you take the funds outta retirement, it's tax-free. Quick caveat though, Congress has been actively trying to close this workaround, so make sure you speak with professionals before trying something like this.
As you can see, there are a lot of options, and this is only a few of the most common.
Be sure to speak with a financial professional to assess if these or other options work for you. You want to have these conversations often, to ensure your financial professionals you work with understand the full scope of your business, your tax situation, and more.
I hope these tips help you as you plan for retirement, whether that's in 40 years or in four. Tell us in the comments below how you're saving and investing for your future, and what is your plan to do in your retirement. Make sure you like this video and subscribe to this channel for more helpful financial tips and tricks. As always, go be creative with your business.