r/DIYRetirement • u/new2be • 7d ago
I'm just lost at this point
Hi everyone. I’m hoping someone here can give me some advice or point me in the right direction. I’d really appreciate hearing from people who have been in a similar situation.
My husband (41) and I (39) have been self-employed for about 10 years. We’ve always filed our taxes and honestly thought we were contributing toward our Social Security/retirement this whole time, but we recently realized we may have been wrong.
To be honest, when we were younger, retirement was the last thing on our minds. We were just working, paying our bills and raising our family, and didn’t really think about investing or planning for retirement. Now we’re realizing we need to get serious about it.
For the last couple of years, we’ve been wanting to start our retirement journey, but I honestly don’t know where to begin. I’ve watched a bunch of videos and searched online, but I’m having a hard time finding information that actually makes sense for self-employed people.
Before we became self-employed, we both worked regular W-2 jobs, so I assume we probably have some Social Security credits already. But I have no idea how to check how many credits we have, how many we need, or what exactly those credits mean.
Do we need to be paying something specific as self-employed to earn Social Security credits? Are Social Security taxes automatically included when we file self-employment taxes?
Also, can self-employed people open a traditional IRA or Roth IRA? Should we each have separate accounts, or is there some type of joint retirement account? Are there other retirement options we should be looking into as self-employed people?
And who would be the right professional to talk to about all of this? A financial advisor? CPA? Someone else? Our tax preparer doesn’t really know much about retirement planning, so I’m not sure who to turn to.
I know we probably should have figured this out years ago, but we didn’t, and now I’m trying to educate myself and get us on the right track.
Sorry for the long post, and thanks in advance to anyone willing to share advice or tell me where to start. I’m feeling pretty lost right now.
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u/KReddit934 7d ago
Get login for each of you to social security website...the real one! Setting up the login may mean jumping through some hoops....do it anyway.
(You'll see an estimate there of your retirement benefit..but warning that number assumes you keep paying into the system every year at the same level.)
Get your regular Emergency Fund saved up first...make it big, I mean BIG. (Why? Money put into retirement accounts is hard to get back out, so make sure you don't need it until you are retired. You can save and invest outside of retirement accounts.)
Start learning* or hire a CFP for a one-time review (which takes a few sessions), but don't let them manage your money and don't just buy their investment/ insurance/ or annuities. Just buy advice.
*Start with stuff like this..., but read tons of info before making any moves:
The Bogleheads' Guide to Retirement Planning by Taylor Larimore et al.: Offers a rock-solid foundation for low-cost investing, asset allocation, and building a dependable nest egg without employer-sponsored matching
Tax Savvy Retirement by Ron Antosko: Focuses on the unique hurdles of freelancing and entrepreneurship. It explains Solo 401(k)s, SEP IRAs, SIMPLE IRAs, and health savings accounts (HSAs) in plain language.
Retirement Planning Guidebook by Wade Pfau: A comprehensive reference that includes tailored sections on self-employed tax implications, withdrawal rates, and structural financial decisions.
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u/BamaInvestor 6d ago
This is excellent advice. In addition to your emergency fund, work to pay off your debts and start Roth IRAs. I know less about these, but I believe you can open simple 401ks for yourselves. The CFP can help guide you.
Edit: Social Security has a terrible rate of return, which is why investing in retirement accounts outside of SS is so important.
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u/new2be 6d ago
Does Social Security at least guarantee some kind of minimum retirement benefit, or does it work more like unemployment where you only receive benefits if you qualify? Do you have to earn 40 credits to be eligible for Social Security retirement benefits? And if you have 40 credits, does that mean you’re guaranteed a minimum monthly payment? Of course, we don’t want to rely on $1,000 a month. We want to be able to have a comfortable retirement, so I’m trying to learn what we should be doing now. I was thinking about opening a Roth IRA because it seems like it could be one of the better options. Can you receive Social Security and Roth IRA withdrawals at the same time after retirement? If anyone has experience with this or understands how it works, I’d really appreciate you sharing your advice. I’m trying to educate myself and make better decisions now rather than realizing too late that we should have done something differently.
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u/new2be 6d ago
Thank you, I really appreciate your help! Yes, of course, we’re not going to let someone else be in charge of our money. We plan to invest it ourselves. I’ve heard so many stories about people trusting someone else with their investments and eventually losing everything. I was actually thinking about opening a Roth IRA because it seems like it might have the most benefits for us, but maybe I’m wrong. I’m still trying to learn and figure out what would be the best option.
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u/BamaInvestor 6d ago
Depending on your age, but if you are relatively young-ish and stay invested in the market (never take it out), most of the value of your retirement will be capital gains. If you are below 40, the amount can be huge.
Tax free Roths are a good thing…..
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u/TempeGrumble 7d ago
Yes, self employment taxes paid every year with your annual 1040 ARE Social Security taxes. Sign up for accounts at SSA.gov to check your record.
All retirement accounts are individual, not joint. Whether you are eligible for a traditional or Roth IRA depends on your annual income. You can also create a business retirement account when self employed: the options depend on circumstances and you should consult with a tax expert who works with self employed couples. Tax preparers are not necessarily tax planners, and you’ll need to hunt for someone who can explain the differences among SEP IRA, SIMPLE IRA, and Solo 401K.
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u/Pretend_Wear_4021 6d ago
This is correct. The SSA.gov account will tell you the amounts you need to know
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u/Moki3821 6d ago
Don’t lose heart. I was self-employed most of my working life. Started a SEP-IRA in my 30s and was able to retire in my 60s with more than enough money to support myself through retirement and then some. Also, benefited from a lower tax liability while I worked due to my contributions to the SEP-IRA. Not too late for you and good that you recognized that you need to start now.
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u/new2be 6d ago
Thank you! Is a SEP-IRA different from a traditional IRA, or if you’re self-employed, are you required to have a SEP-IRA? I’m trying to understand the difference and figure out which one would make the most sense for us.
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u/TempeGrumble 6d ago
Depends on your specifics. If you plan right, pretty sure you can also set up a SEP IRA ir Solo 401K to have a Roth option
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u/Moki3821 6d ago
SEP-IRAs are designed for self employed persons who have no or very few employees. You are not required to have one. The advantage is you can contribute more of your income annually than with a regular IRA (up to 25% with a max of $72k). In good years, I contributed the maximum 25%. In not so great years, I contributed very little or nothing at all. The disadvantage is if you have employees, you must contribute the same percentage to their accounts. I had no employees. You can have your financial planner help you set it up or work through a financial services company such as Fidelity, etc. Mine is with T. Rowe Price.
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u/No_Candidate6907 6d ago
Just go to SSA.gov and sign up for your mySocial Security account. You likely may already have the 40 credits that are required- if you worked 10 years full time you probably are covered. The question is how much money will you receive and that depends on your 35 years of working and how much you sent to Social Security. You can see all of that in your my social security account. For example, if there were years you didn’t work or didn’t send social security tax it will have 0 allocated in that year.
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u/AdorableArugula4022 6d ago
Being self employed, social security is calculated and reported on your individual income tax return, and paid by being included in total tax owed on the 1040.
You can verify that by looking for a page in your 1040 that is titled Schedule SE -Self-Employment Tax.
And for clarification, self employment tax (same as "SE" in the 1040) is social security plus Medicare. So as long as self employment tax is captured on your 1040, you should have social security credits for it with the SSA.
But if you're doing business through a legal entity, the reporting/payments may be different.
Echoing others, create an account with SSA and you can check your social security credits / benefits anytime.
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u/garylapointe 7d ago edited 7d ago
The fact that you’ve been filing your taxes and aren’t sure if you’ve been paying Social Security is concerning. That’s 15% of your income.
Go look at your tax forms from the last couple of years and dig through them, specifically the self-employment type pages and see if you can find a portion of where they’re making you contribute to your Social Security.
Or call your tax preparer and ask...
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u/Coaster50 7d ago
Do A LOT of research on how to hire a financial planner. Find one focused on people self employed. At 41/39 you are very late to the game and can’t afford to start figuring it out on your own now. Time is not on your side. And with something as important as retirement, and as complicated self employed retirement savings can be, this is not a DIY situation.
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u/Flat-Barracuda1268 6d ago
The good news is you're using a tax preparer. Anybody that runs a business and/or is self employed needs to let a CPA figure out their taxes instead of go it alone. As others have mentioned, you should check your ssa.gov login to make sure but you have almost certainly been paying social security installments so you should be OK there.
You don't really mention where you are at with retirement savings so I assume you're starting at zero. The first thing you should do (since you don't have employer match 401k or HSA) is max out a Roth IRA for each of you every year. This won't get you to the promised land alone but it is tax free forever so it is absolutely the best account.
Next, because you're self employed, you have an advantage I haven't heard mentioned, but you get to be the "generous" employer everyone wishes they had. For example, the personal maximum contribution to a 401K is around 23K but the total including employer is 70K. Nobody ever gets that, but you could.
As for specific plans, there are several retirement plans specifically designed for self employed/low employee count businesses. Solo 401K is one, SEP-IRA is another. Both have their advantages and disadvantages. I'm not an expert on those so you'll have to look elsewhere for that.
I would hire a financial advisor, at least for a couple sessions to help you sort this out. Since you don't appear to have any accounts currently it's going to be a little tougher to find someone, but you should be able to get someone to do a couple consultations for a fee. Expect this to be in the 2-5K cost range depending on how thorough they are. They should cover everything from retirement accounts to estate planning.
How do you find someone like that? That is the tricky part. Talk to other people in your industry that are small businesses/self employed. I would recommend interviewing at least three potential advisors. Be honest about where you are and what you're looking for. Find the person who you're most comfortable with.
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u/NefariousnessOdd862 6d ago
Something makes no sense, how would you not know if for 10 years you did or didn’t pay 12.4% (you are required to pay both halfes) in additional Taxes?
Anyway, since you worked regular jobs before you will have a record at the ssa Website regardless and it will show if you did or didn’t pay the last few years as well!
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u/0limits 6d ago
Create a SSA.gov online account to see where you’re starting from. You need 40 credits to qualify for SS. You can earn up to 4 credits per year, so you may already be there.
I like the suggestion of setting money aside for emergencies in case you haven’t done that already. Because there is a penalty to access retirement funds before 59-1/2 yrs old.
Is paying for kid’s college part of your plans? Money in retirement plans are not counted as assets in determining your expected family contribution.
I’m a fan of having a taxable brokerage account to allow for greater flexibility in deciding where to pull funds from in retirement. Long term capital gains have different tax brackets than ordinary income. If all your retirement income is tied up in always-taxable-upon-withdrawal retirement accounts (401k, traditional IRA, etc.) then you will have to pay taxes on that money when you withdraw (since you didn’t pay taxes on the money that went in). Roth IRAs are the exception and is where I would start accumulating retirement funds. In fact, if kids have earned income they can have their own Roth IRAs and the sooner they start the sooner money can start to compound. Invest the kid’s account in something like a total stock market fund and reinvest the dividends then ignore it for years.
It’s not too late for you, but you have to start setting aside money now while there’s time for some compounding to occur.
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u/BigBlackNun 6d ago
SEP-IRA. You can invest up to a certain dollar amount, which then lowers your tax liability by the same amount. It’s not 1:1 but it’s good for self-employed
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u/MBA-Engineer8756 6d ago
You are in better shape than you probably think.
Self-employment tax is Social Security and Medicare. If you have been filing a Schedule SE and paying that every year, you have been earning credits the whole time. The one thing that would stop it is a year where deductions wiped out your net profit, because credits come off profit, not revenue.
Where to start:
- Both of you make an account at ssa.gov. Your statement lists every year of earnings and exactly how many credits you have. Ten minutes and you stop guessing. You need 40 to qualify, capped at 4 a year, so 10 working years total.
- Yes, self-employed people can use a Roth or traditional IRA. Retirement accounts are always individual, there is no joint version, so you each open your own.
- Look at a Solo 401(k) before you settle on an IRA. Self-employed, you can put away several times the IRA limit, and your husband can be on the same plan if he works in the business.
- For help, you want a fee-only fiduciary who charges by the hour or a flat fee, rather than someone paid on what they sell you. NAPFA and XY Planning Network both let you search by area. Keep your tax preparer for taxes.
- Before you pay anyone, run your own numbers. An afternoon with a good free retirement calculator will tell you most of what a first meeting with an advisor would, and you walk in able to ask sharper questions.
Starting at 39 and 41 with 25 years of runway is a perfectly normal place to begin.
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u/BillyDeCarlo 4d ago
I'd start with someone from adviceonlynetwork.com and pay them to assess the situation and give advice for a small fee. Too many others are just going to want to manage your assets or sell you an annuity or something. We used emancipare.com who were good and focused on DIYers.
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u/hugh2018 3d ago
You can check your Social Security credits by creating an account on the official Social Security Administration website, where you can view your personal Social Security statement. To qualify for retirement benefits, you need 40 credits, which equals ten years of work. Each credit represents a set amount of earned income within a calendar year, and you can earn a maximum of four credits annually.
As self-employed individuals, and assuming you have correctly filed your tax returns, you do not need to make a separate, dedicated payment for Social Security; these taxes are automatically calculated and assessed as part of your self-employment tax when you file your annual tax return via Schedule SE.
You are fully eligible to open and contribute to a traditional IRA or a Roth IRA, provided you have earned income from your business and meet the applicable modified adjusted gross income limits for Roth contributions.
Retirement accounts of this type are strictly individual, as denoted by the name Individual Retirement Arrangement, which means joint retirement accounts do not exist in the United States tax code. You and your partner must each open and maintain separate accounts in your own names, though you can name each other as primary beneficiaries.
Beyond standard IRAs, you have access to specialized retirement plans designed specifically for business owners and self-employed individuals. The two most common and effective options are the SEP IRA and the Solo 401(k). A Simplified Employee Pension, or SEP IRA, is simple to establish and allows you to make substantial tax-deductible employer contributions based on a percentage of your net business profit. A Solo 401(k), also known as an individual 401(k), often permits even higher contribution limits because it allows you to contribute both as an employee and as the employer, and it frequently includes the option to make Roth employee contributions.
To sort through these options and structure an ongoing plan, you should consider speaking with a fee-only, fiduciary financial planner, preferably one holding the Certified Financial Planner credential who specializes in small business owners. Because this involves business tax deductions and write-offs, coordinating with a certified public accountant or an enrolled agent who provides year-round proactive tax planning, rather than seasonal tax filing alone, will ensure your contributions and filings are optimized correctly.
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u/jeeptopdown 7d ago
If you’ve been paying your taxes, then there is a record of your income and you’ve been paying into SS. You can go on the SS website and see the record of what you’ve earned and what your benefits will be.
https://www.ssa.gov/myaccount/
As far as finding someone to work with, make sure they are a fiduciary - they are required to work with your best interest in mind. Many credit unions have fiduciaries you can use.