Looking ahead at retirement planning

Government workers and employees at large corporations generally arrive at the end of their working years with some type of employer-sponsored retirement plan to help them financially support the lives they want to live post-career.

Sadly, massage therapists rarely have this luxury.

In fact, unless you’re on someone else’s payroll and they’re willing to fund a defined benefit or defined contribution plan—the two types of pension plans the United States Department of Labor reports as being covered under the Employee Retirement Income Security Act (ERISA)—your retirement monies are 100 percent your responsibility.

So what can you do starting today to start creating a retirement you can actually enjoy after putting in decades of hard work?

“The best time to start preparing for retirement is yesterday,” says Garrett Ball, president of Secure Medicare Solutions Inc., “but if you have not started yet, don’t worry, it’s also never too late.”

In other words, don’t let your age deter you from sitting down right this moment and coming up with a workable retirement plan.

Plus, you have a few different options to consider, largely depending on whether you work completely on your own or if you operate a self-owned massage therapy business, complete with staff. What are they?

If You Work For Yourself and It’s Just You

As a self-employed massage therapist, one of your options is a SEP-IRA, which stands for a Simplified Employee Pension Individual Retirement Account. Setting up a SEP-IRA “allows you to contribute a large amount annually towards a qualified plan,” says Ball.

According to the Internal Revenue Service (IRS), SEP-IRAs are available to any size business and have no filing requirement, but there are contribution limits. As of 2017, those limits are 25 percent of your compensation or $54,000.

The great thing about a SEP-IRA is, if at a later date you grow large enough to acquire employees, you can also offer a SEP plan to them.

The IRS does have a number of rules regarding employee-provided SEPs though, so you need to be aware of this beforehand.

For instance, they have a 3-of-5 rule which states that “you must include any employee in your plan who has worked for you in any 3 of the last 5 years (as long as the employee has satisfied the other plan eligibility requirements),” two of which include being 21 years old and receiving more than $600 in compensation.

“You also could do a regular Roth IRA,” says Ball, “which is a tax-advantaged plan that many self-employed people elect to use.” If you’re unfamiliar with what this is, it’s essentially an individual retirement account where you can place after-tax monies so it can grow tax-free. However, certain rules apply to this option as well.

For instance, the IRS has established limits as to how much you can contribute annually, which is $5,500 as of 2017. And if you make over a certain amount of income ($192,000 married, filing jointly or $132,000 as single, head of household—again for 2017), you cannot contribute to a Roth IRA at all.

“Regardless of what vehicle you use, the most important thing is that you make regular contributions to it,” says Ball. “Many people delay contributions, believing that they will catch up at the end of the year. However, research shows that more than 90 percent of people who plan to catch up at the end of the year never do. Because of this, it is crucial to set up regular, monthly contributions.”

If You Work for Yourself and Have Employees

If you own your own massage therapy business and employ other therapists or have one or more administrative staff on payroll, you may also consider whether to offer them some type of retirement account.

“We struggled with how to save for a long time,” says Beret Kirkeby, a registered massage therapist in Ontario, Canada, and a licensed massage therapist in New York, “because, when you’re self-employed, there are not a lot of options.”

However, the retirement option that she’s chosen for her New York-based business, Body Mechanics, is a profit-sharing plan.

Investopedia defines this type of plan as a plan in which “an employee receives a percentage of a company’s profits based on its quarterly or annual earnings.” Furthermore, even if you have other retirement plans in place for your staff, profit sharing is still money-saving plan you can use.

One of the advantages of using a profit-sharing plan, according to the IRS, is that the contributions are discretionary and it’s a “good plan if cash flow is an issue.”

On the flip side, you might have higher administrative costs when compared to other retirement options and they also suggest that you may have to look at it more in depth to ensure that your employees who are paid more are not favored by the plan.

“Since you are taxed extra just for being self-employed, it is an excellent way of lowering your tax liability,” Kirkeby says of profit-sharing plans for retirement. “It does cost to set up and maintain, but if you are trying to save and finding most of your profit goes to taxes because it is showing up as profit, it is an excellent option.”

If You Do Work For Someone Else

Even if you do work for someone else, that doesn’t mean you don’t have options too. “If you are an employee (receive a W-2), but your employer doesn’t offer a retirement plan, you can contribute to a Traditional IRA and get a tax deduction for 100 percent of your contribution.,” says Abby Eisenkraft, E.A., A.T.A., A.T.P., C.R.P.C., CEO of Choice Tax Solutions Inc. and author of 101 Ways to Stay Off the IRS Radar.

Just as with a Roth IRA, there is also a limit as to how much you can contribute to a Traditional IRA annually ($5,500 as of 2017), with household income stipulations as well.

That’s why Eisenkraft recommends that, “Even if you do your own taxes, you may want to sit down with a tax professional to discuss the various IRAs available, and for someone to show you exactly where on the tax return you get the deduction, and how it affects your taxes. Investing an hour or two with a professional will pay off royally. You can build a huge nest egg and reduce your taxes.”

Put simply, if you don’t start planning for retirement now, while you’re still working, you may not have the funds necessary when you’re ready to fold up your massage table and close your doors for good.

This means that you’re going to either be working until you can draw enough Social Security to live on (assuming it’s still around) or you won’t be able to live your dream retirement life because you won’t be able to afford it. Either way, you lose.

Don’t let this happen to you. Start working toward retirement today, while you still can.

 

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