Retirement Planning for the Owner Operator
 

Hey Y'all. What are you doing for retirement planning? Do you put money in an IRA? If so, what type?

I have not looked into this until now. When I worked for the "guv'ment" I put money into a 457 account (like an IRA) every month; also had employer backed retirement plan that I have a vested balance in. But between those, and Social Security, I am still WAY short of what I'll need to (hopefully) retire in another 10-15 years.

I need to sock away about $30,000 per year if I am ever gonna retire. And since I can't do that, well, I need to save all I can...What are you guys doing? :?

well i am not an O/O but i put my money into my companies 401K (just enough so they can match it)..

then i have my personal IRA that i put money into.

My advice is meet with a financial planner or your tax person. They will help you try to figure out a budget you can live on and then set up a tax free account (IRA or something similar) for your business.

Avoid the temtation of seeing that cash each month and try to get a certain amount automatically transfered from your business acct into the taxfree acct so you don't have to rely on yourself to put it in.

If you're self-employed and a sole proprietor you're basically limited to the various IRA's and SEPs. Whether a regular IRA or Roth is best for you depends on what your tax bracket is now compared to what you expect it to be in retirement. The maximum deduction you get with these is $4500/year. If you want to contribute more, you can look at SEPs. I think the maximum contribution is somewhere around $15,000 but I haven't kept up on those. One other option is the Solo 401(K). It has a much higher contribution limit but there are significantly higher fees involved since it has to be administered just like a regular 401(k). If it's an option, making use of a HSA is also a way to sock money away tax-free.

save what I can but I keep rolling my profits back into mine and my wifes business, I do some trading mostly oil and gas stocks since i`ve spent a good chunk of time in the industry, although buying GM under 11 was a real nice buy.


we do piss some away though, my wife`s 24 and grew up a farmer and i`m 26 and grew up poor so between our 100 hour work weeks we like to cut loose :lol:


still I can`t complain, two years ago we had alot of plans and not a whole lot of cash, now our house is built and paid for and we`ve got two great kids.

Unfortunately this is something that many owner/operators and even company drivers do not plan for at all.

The younger you start, the better of you'll be.

I'm 25 right now, should be retired by the time I'm 45 if I play my cards right. Maybe even earlier.

The truck will be paid off in a couple months($1400 a month). that's going to go straight into investments.

most of the o/o I have talked to are planning on buying a hot dog truck

I've done a lot of research on this for other business ventures. There's a way you may be eligible to put away that $30k/yr. It's called a Solo or Self Employed 401(k). The following is from http://www.smsmallbiz.com/The_Solo_401(k).html:

"Enter the solo 401(k) plan. For those who are looking to max out their contributions to a deductible retirement account, it's a major improvement. The reason: With a solo 401(k), annual contributions consist of two parts. And in this case, two is definitely better than one.

First, you can contribute up to 100% of the first $15,500 of your 2007 compensation or self-employment income ($20,500 if you'll be 50 or older at year-end).

And there's more: You can contribute and deduct an additional amount of up to 25% of your compensation income, or 20% of your self-employment income. This second part of your annual contribution is like what you can do with a traditional small-business retirement plan (mentioned above).

To see how the two parts stack up, let's go back to our examples.

Your corporation pays you $80,000 this year. The maximum deductible contribution to your solo 401(k) account would be a whopping $35,500 [$15,500 + (25% of $80,000)]. That's a lot more than the $20,000 you could contribute to a traditional plan (25% of $80,000).

Now say you earn $80,000 from your sole proprietorship. The maximum solo 401(k) contribution would be an impressive $31,500 [$15,500 + (20% of $80,000)]. With a traditional plan, your maximum contribution would have been a mere $16,000 (20% of $80,000).

If you're 50 or older, your maximum solo 401(k) contributions for 2007 would be $40,500 [$20,500 + (25% x $80,000)] and $36,500 [$20,500 + (20% x $80,000)], respectively. "

Fidelity Investments answers many questions about this type of 401(k) at http://personal.fidelity.com/product...sr?refpr=sb006
They'll take care of all the paperwork making setup a snap. Plus Fidelity provides a host of investment options.

You must designate in writing before the end of your tax year that you're making the elected deferral (that's the $15,500 portion). The Solo 401(k) relatively new and IRS approved (see IRS Publication 560). And all contributions are tax deductible!

And I just realized, here's a reason for incorporating that finally makes sense as you can contribute more if incorporated!

Yeah! But first you got to make those 30 grand extra..! :roll:
BTW is that on top of traditional IRA?

As long as you still have earned income after the 401k contributions I've always found the answer to be yes.

where are these o/o's making all this $$$$$$

They're getting all this "money" by not hauling general freight, watching their expenses, and keeping their overhead down.

This is after mortgage,car payments truck payments,medical insurance, college fund, braces,clothes for the kids, income tax, not to mention 8 grand for social security?

Most of them don't pay any of that, rent and truck payments, some don't even have to pay rent :lol:

If they aren't paying mortgage payments, or rent payments...they are living out of their trucks? Kind of a pathetic way of life, and if that was the case, retirement planning is probably the last thing on their minds....

Is it not possible that one has their house paid off?

Most people should have it paid off by the time they're 40.

That's an awfully broad statement :lol: Just what is the median home price in Winnipeg? :shock:

With a (standard) 30 yr mortgage, that means you need to be 10 yrs old when you buy to pay off when you're 40.

Now I that would be a GREAT way to spend one's allowance and paper route money :)

Generally speaking..NOBODY is going to have their house paid off by the time they are 40. Very few people go the route of a 15 year mortgage, and at that rate, they would have to be into the house by the age of 25, which most people are not. Again, this is MOST people..there are exceptions, and there are people who pay their houses off early, but we are speaking of your GENERAL o/o who runs for $1.40 or so a mile (some get more, some get less, but I'm trying to be "down the middle" with this.) That person is not going to be able to have a paid off house (that is anything more than a single wide trailer), while making a tractor payment, possible trailer payment, insurance, fuel, kids, drivers wages, saving money, paying misc. bills etc. Just not feasible, unless his/her spouse has a very well paying job.

30 yr mortgages are standard now!?

That's lunacy.

If you cannot afford a home on a 15 yr mortgage, the home should not be bought.

Depends on what homes are going for in your area. Around here, $200-$250k seems to be the norm for your "average house". My parents had theirs listed at $400k, and had people biting at it left and right..hell, want to rent a 3 bedroom apartment? Might as well cough up $1,200 a month for rent..and that's BEFORE utilities are included.

Average homes seem to be in the 200-220k range here.

I went modest and got mine for 130k, 1000 sq ft 2 years ago. It's probably worth around 170k now. I also put 25% down.

In our neighborhood, a 1300 sf tract home built in the mid-60's with no updating will run you $600,000 or so. Your 15-year mortgage payment would be...$4500 and that's if you could plunk $120,000 down. Of course we're not including agent fees or closing costs but why quibble over $40,000 :lol: Needless to say, not many people are free and clear at 40 around here. Like everything else in real estate...it's local.

Where's "around here" no_worries?

That square footage and price sounds like either the NE or California.

OC CA.

That's THE oc... :)

Yeah I agree with you on house costs. I spent 10 yrs in Newport (down on the penninsula) and Costa Mesa....that is some expensive real estate.

I don't know how young people get a start down there these days.....too high a % of income needs to go towards providing a roof over one's head. Unless, of course, you want to move to the IE (Inland Empire) and that ain't cheap either.

It's called making good decisions in your life.

buying a 600k home when you're 25 with not much money down wouldn't be one. Unless you're making 150k+.

"If you can't afford a 15 yr mortgage the home should not be bought" Allen5oh

Are you from Mars?

Sounds like a Dave Ramsay convert :lol: Who's to say it wouldn't be a wise decision? If you can such it up and swing the payments, in a couple of years that piece of real estate just might be worth $800,000. Topics like this are simply much too variable to paint with such a broad brush.

You're right Geo, even the IE has gotten expensive, relatively speaking. Of course, they're also getting the worst of the foreclosure hit now too. It's going to be interesting to see how this whole mess shakes out. I just saw where Stockton is the foreclosure capitol right now. A bunch of the subprime lenders are based in my area and are shedding jobs like mad. It's fascinating to watch the fallout.

http://www.dqnews.com/ZIPCAR.shtm
Areas of OC are sinking like certain areas in every county.

check out San Luis Obispo, a great area, and Paso Robles

OK so this magical house you buy is now worth 800k. What do you do with it?

About the only thing you can do is brag to your friends. Do you think they care?

Are you going to move out and move into a much smaller house? That's about the only way to capitalize on the appreciation.

I've said it before and I'll say it again, your house is a liability. It's not an asset. Assets you can CASH OUT.

If you do that, where are you going to live?

Of course, this doesn't apply to rental properties. I'd much rather buy a 500k house/duplex for a rental property then for myself.

Is it really a hard concept?

That doesn't mean that you should get a 15 year mortgage, situations can be different.

BUT... if you cannot afford that 15 year mortgage, who is to say you can afford a 25 or 30 year mortgage?

That was my point. Hope for the best, prepare for the worst.

sounds like some back peddling but...

don't be so smug about how great you are doing financially
just ask some of the Limo drivers at Newark airport

a 15 yr is pretty stiff for a young couple and almost forces the wife to keep working after she has kids ....which sucks
you don't want anyone raising your kids but you and your wife
no not grandma,or auntie so and so

My wife stopped working to raise our 3 sons
and is only now back in the workforce

You can rush to put equity in your home
with a 15
Or if you really want to get a 30 and make extra payments
and still have a cushion to pay less if you want to

That's how I do everything, it never hurts to stretch it out as long as possible IF you have the discipline to pay extra. I pay extra on my house and vehicle (s). If things get bad I have a cushion to work with and not lose my gots. (possessions) 8)

The courts don't think Britney is the best choice to raise her kids. I got sole custody in my divorce. My cousin came home to a note that essentially said Bye, don't want to do this anymore and you can keep the kids (3).

Can't agree the husband/wife team is always the best. And I'm sure there's just as many examples of husband's being the "bad" one too.

Sounds like you have an admirable game plan for your family Sonny. I remind my daughter that if she doesn't make a plan for her life then somebody else will. And she may not like their plan!

Best of luck!

I'm doing ok I guess. Planning is everything. I run my business and my house like a business. Too many o/o's run their business like they're truck drivers.

No it doesn't, it all depends on your lifestyle and your life choices.

Sounds like you have a strog commitment to your family, that's fantastic.

The later comments were more for comparison.

I'm saying if a 15 yr mortgage vs. a 25 year mortgage "breaks the deal", there's something wrong overall.

I'm not saying that your idea is a bad one allan. However, you approach the matter as if it's the best way to do things. It's simply not true and would be presumptuous to assume so. What may be great for one person in one particular situation may not be what's best for someone else in a similar circumstance. Like I said, the subject is to complex to paint with such a broad brush as saying if you can't do it on a 15-year then you can't afford to do it.

As far as what to do with the $800,000 house. Someone that can't figure out how to manage a $200,000 windfall won't have to worry about it for very long :lol: At the bare minimum you're now wealthier by $200,000, whether you stay in the house or not. People that truly understand finances understand the difference between income and wealth why wealth is what matters.

Those are general statements, not YOU specifically.

Yes, but when that "wealth" is locked away to the point where if you sold your house and bought another house, you'd break even. How else can you use this wealth? You could use it to borrow money, that's about it.

You feel wealthy, but everything else indicates you aren't.

Besides, that wealth can disappear, as we're seeing.

A house is not an investment, it's a liability.

That is exactly what I did on my current car, 5 yr note with no prepayment penalty. I view the payment as simply a minimum, depending on how my finances are each month I pay 1.5X-3X minimum. The car is roughly 45% paid off already.

Like I said, a small portion of the populace knows how to make wealth work for them...the rest don't have to worry about it. And you're right, for some, a house is a liability. But once again, it would be inaccurate to claim that is always the case.