Having a traditional retirement plan through an employer isn’t always available in yachting. But that doesn’t mean you can’t save for your future. There are a few different retirement plans for US residents and citizens. Some are only available through an employer, but others you can open without being tied to a job or company.
1. Individual Retirement Accounts (IRAs)
Traditional IRAs are tax-deductible accounts; you only pay taxes when you make withdrawals in retirement. They have required minimum distributions (RMDs), where you must take out a certain amount every year once you reach 70 years and six months. You can also get a Roth IRA, which doesn’t have tax-deductible contributions but qualified distributions are tax-free. There are no RMDs for a Roth, so you don’t have to take money out unless you want to.
2. Simplified Employee Pension Plan (SEP)
A SEP plan is a type of Traditional IRA an employer sets up and contributes to for their employees. You can also set one up if you’re self-employed. They come with flexible contributions, which is good news for yachties.
Contributions are tax-deductible, but any employee on the plan must get the same percentage of compensation. Say an owner contributes 15 percent of their compensation; each eligible worker would also get 15 percent of their earnings directed toward their plan.
3. SIMPLE IRA Plan
The Savings Incentive Match Plan for Employees is set up by an employer for all employees. Unlike the SEP, the employer can’t have any other type of retirement plan if using a SIMPLE IRA. Employees aren’t required to contribute, and there are two separate employer contribution options: to match up to three percent of compensation, where if employees don’t contribute, they won’t get an employer match; or a two percent non-elective contribution, where employers contribute to the plan even if employees don’t.
4. Solo 401(k)
A Solo 401(k) is a 401(k) plan for business owners without any employees. It allows someone to contribute to a retirement plan as an employer and an employee. Owners can contribute elective deferrals up to 100 percent in earned income and 25 percent of compensation outlined in your plan — not one or the other.