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Forbes
05-05-2025
- Business
- Forbes
How To Open a 401(k) Without an Employer in 2025
How to best save for retirement if your employer does not offer a 401(k). If you're looking to grow your retirement savings, a 401(k) can be a game-changer—but what if your employer doesn't offer one or what if you don't have an employer at all? Let's break it down and explore your options for securing a rock-solid financial future. The options will vary depending on if you are self-employed or just working for a business that does not offer a 401(k) or other retirement account. A 401(k) is a tax-advantaged retirement savings plan typically offered by employers. Contributions are either pre-tax (Traditional 401(k)) or post-tax (Roth 401(k)), allowing your money to grow tax-deferred or tax-free, respectively. Employers often provide matching contributions, which are essentially free money to boost your retirement savings. If nothing else, you should contribute at least enough to get the full employer match. In 2025, you can contribute up to $23,500 to a 401(k) as an employee. If you are 50 or older, you can also make an additional $7,500 catch-up contribution. The limits are even higher if you have self-employment income. Unfortunately, you cannot open a standard 401(k) alone; an employer must set it up. However, if you're self-employed, an alternative called a Solo 401(k) lets you take advantage of this powerful retirement-savings tool without a traditional employer. Not all companies offer 401(k) plans, but don't let that stop you from achieving your retirement goals! Here are a few alternatives. These individual retirement accounts allow tax-advantaged savings, though the contribution limits are lower than a 401(k). While not tax-advantaged, investing in a taxable account gives you flexibility and access to a wide variety of investment options. This is also a great place to build toward financial freedom once you've already maxed out your other retirement accounts. If you have freelance income, a Solo 401(k), SEP-IRA, SIMPLE IRA and Cash Balance Plans may be excellent alternatives. If you don't have an employer or any earned income, you won't be able to contribute to a 401(k). Retirement accounts require earned income (salary, wages, self-employment earnings) to fund contributions. However, you can still invest in taxable accounts or consider spousal IRA contributions if your spouse has income. You can fund an IRA or Roth IRA if you have earned income during a tax year, even if you no longer have an active job. Absolutely! If you run a business or work as a freelancer, you can open a Solo 401(k) (sometimes called an Individual 401(k)). As far as tax-planning strategies for small business owners, this is one of my favorites. This lets you contribute as both the employer and employee, potentially allowing for higher contribution limits than a traditional 401(k). For 2025, you can potentially contribute up to $70,000 into a Solo 401(k), plus the $7,500 catch-up contribution. Think of how much money this could save you on taxes over time. Other options for self-employed individuals include: While traditional 401(k)s require an employer to set them up, you still have plenty of ways to save for retirement, even if you're self-employed or working at a company without a plan. The key is finding the best fit for your financial situation and maximizing tax advantages.
Forbes
07-04-2025
- Business
- Forbes
8 Investing Mistakes To Avoid Making After Trump's Crushing Tariffs
So far the stock market has not been a fan of Donald Trumps crushing tariffs. Markets have been in ... More free fall. How to avoid making huge investing mistakes reacting to the policy choices by the Trump administration. Ignoring the crisis du jour (Trump's Tariffs Induce Stock Market Meltdown) will be nearly impossible for anyone to ignore. It is dominating the news cycle and driving up prices of things you buy every day, like groceries. You may not notice bananas costing a few cents more per pound, but you will surely feel the pain of a "Tariff Fee" line item when you purchase your next car. Hence, this piece highlights eight investing mistakes when crushing tariffs are imposed on the world and the stock market tanks on the news. Donald Trump, in his second term as President, has come in hot with a slew of executive orders and massive tariffs, as I'm sure you've heard unless you are a resident of Heard Island and McDonald Islands (JK, only penguins live there, and they don't read my column). There is reason for market turmoil and concerns that years of globalization will be overridden. It would be remiss of me to ignore this chaos. Whether you love or hate Trump, emotions are running high, and emotional decisions are the enemy of investing excellence. While we have never seen anything like this specific situation, over the past 125 years, the markets have come back from terrorist attacks, world wars, pandemics, presidential resignations and even the last time a president tried to implement tariffs this dramatically. While we will have to wait and see how this plays out, I'd hate for you to make one or more of these eight investing mistakes that could create additional financial stress and pain during this difficult time. While I am there with you, wondering what the future holds, I am confident that the greatest companies will continue to find ways to make money. Perhaps they will make less or work harder to make those record profits they've seen the past few years, but they will make money. Investing in these companies is the best way to stay ahead of inflation (more is coming due to tariffs) and grow your wealth over time. Stopping contributions to your retirement account is something you will likely regret. Your potential for above-average returns increases when the markets are scary. Once you've stopped making retirement plan contributions (think 401(k), Roth IRA, SEP-IRA or even Cash Balance Plan), there will never be a perfect time to start investing again. Skipping 401(k) contributions could quickly turn into a million-dollar mistake for the average worker, just from missing out on employer matching. This is essentially free money from your employer that you may miss out on if you skip contributions. Lastly, if you miss out on pre-tax contributions to your retirement account, you could see your tax bill jump as your taxable income jumps (after missing out on the tax deductions for contributions to the 401(k)). The increased taxes could outweigh what should be a temporary drop in the stock market. I'm based in California, where the top tax rate (state and federal combined) tops 50%. I am optimistic that we won't see that big of a dip in stock market values unless they try to make this tariff/trade war bigger than the huge mess we are currently seeing. I'm not saying you should sell stock with gains, but you need to answer two questions (at least) before selling. 1. Is this a stock you still want to own? 2. What are the tax implications of selling this stock? Let me use Tesla stock as an example. It is down over 40% off its peak value (as of writing this post). Its value is around where it was in 2020, but the value is up substantially from one year ago. Many owners of the stock are still sitting on substantial capital gains. Think about whether you still want to own your individual stock. If you are appalled by Elon Musk and DOGE, you may be compelled to sell this stock regardless of tax consequences. Alternatively, I know many financial advisors I speak with who love Musk, have recently purchased new Teslas and are piling into the stock. Even if you are determined to sell your Tesla stock, be aware of the tax consequences. You could get hit with 15-20% federal capital gains taxes with more taxes at the state level. Additionally, if your income is above $200,000 (single) and $250,000 (married), you could get hit with Net Invest Income Tax (NIIT), which adds another 3.8% to your tax bill. The choice around Tesla stock buys/sells may be politically charged. I'm going to guess the average investor doesn't feel quite as strongly about your average large-cap ETF fund beyond wondering if it will make them money in the future and how much taxes they will own on future gains in the ETF. If you know me, you know I love tax planning. Saving money on taxes can be the difference between running out of money in retirement and living a fabulous lifestyle. Tax loss harvesting is a great way to capture tax savings when stock markets get scary (like the past few weeks). Tax loss harvesting is a great way to increase your net after-tax returns on your investments without incurring any additional stock market risk. Substantial stock market returns are great. However, I get the most thanks from clients when I save them money on taxes, and tax loss harvesting is often a nice way to surprise and delight them with money saved on taxes today. Piper Noooo is many peoples favorite catch phrase from White Lotus Season 3. Many people have been ... More also saying Donald NOOOO in response to his tariff policy which has been devastating for stock market values. LOS ANGELES, CALIFORNIA - FEBRUARY 10: (L-R) Patrick Schwarzenegger, Sarah Catherine Hook, Parker Posey, Jason Isaacs and Sam Nivola attend the Los Angeles Premiere of HBO Original Series "The White Lotus" Season 3 at Paramount Theatre on February 10, 2025 in Los Angeles, California. (Photo by Kevin Winter/GA/The Hollywood Reporter via Getty Images) Wow, we have gone from the Trump bump in stocks to the Trump tariffs pushing the stock market off a cliff. Even the most Maga-loving people in my world are getting a bit pessimistic. I just keep picturing Parker Posey (via 'The White Lotus' Season 3) yelling "Donald, NOOOOOOOOOO!!!!!" in her best southern accent. The only bright side I can find if I'm trying to polish the turd we have been handed, is that those with a well-diversified multi-national portfolio are likely to fair a bit better than those with more concentrated US stock positions. A combination of domestic and international stocks and bonds in your portfolio is called diversification. There is no guarantee that diversification will eliminate stock market pain; it can help reduce the pain in many scenarios. Investors benefitted from investing in many international stock markets in Europe, Latin America and Asia in the first quarter. However, stocks in those regions have been hit by the worldwide market declines lately as the perceived potential for extreme global damage from tariffs has smacked us in the face. Since Trump announced his huge tariffs, many international indexes have dropped far less than US-based indexes in the past few days. Since we are talking tariffs, some countries will fare better than others under the Trump tariffs. At this point, your guess regarding which countries will fare better is as good as mine. Hence, staying diversified, or getting diversified if you aren't already, is a wise investing move for the future. Since I started as a financial advisor more than 20 years ago, the need for portfolio rebalancing has been drilled into me. This lesson really paid off during the financial crisis. Stock market losses were still painful (they always are), but they were much smaller for people who had diversified portfolios that they rebalanced on a regular basis, typically annually, sometimes more, sometimes less, depending on the account and investments. However, rebalancing is one of the most counterintuitive pieces of investment advice, which can lead many people to skip it. What is rebalancing? You sell off parts of your portfolio that have been the best performers to buy more of the parts of your portfolio that have recently underperformed. If an investment has outperformed, it is more likely to be overvalued. Similarly, an underperforming sector or market is more likely to be undervalued. Without setting up automatic rebalancing or having a fiducial financial planner forcing you to, many people who own investments skip or ignore rebalancing. Recently, we have seen the most dramatic outperformance concentrated in just a few stocks; I'm sure many people reading this are overly invested in the Magnificent Seven and the household names this moniker represents. We are talking about Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia and Tesla. Even if you don't hold these stocks directly, they are included in many ETFs of mutual funds you may own. They may even dominate some or all of your funds. Anytime you think about going to all cash, ask yourself, "How will this help me reach my financial goals?" When the economy is scary, a case can be made to increase your cash on hand to weather a downturn. However, selling all your investments will almost never be a good idea. In the best-case scenario, you guess right and sell out before the market drops. You may be feeling great for a bit. Then the market goes up, and it keeps going up, and you end up buying back into the markets again in at some point in the future, buying at higher prices than when your sold out of the market. Likely losing money in the process. To time the market, you have to guess right twice, both when to sell and when to buy. No one has been able to consistently do this over time. If the market drops, you will likely get scared, hence the motivation to go to cash. Essentially, you are just locking in your losses. Then, you will buy back in when the market appears rosier, completing a cycle of selling low and buying high. Many times, someone will go to cash without taking taxes into account and end up owing 20-30% in taxes, which is money that is gone and not available to help you continue building wealth. Not to mention, 20-30% is typically bigger than most stock market corrections. Some people never feel it is time to get back into the market after selling and leaving. I've spoken with people who still aren't fully back in the market correction that happened during Trump's first term due to COVID. Some people are still out of the market due to the great financial crisis. If you have been thinking about doing Roth conversions, the best time to do them is when the stock market is down. Roth conversion is a great tax strategy to increase your tax-free income in retirement. In case you were wondering, I do expect taxes to be higher in the future. You can think of the current budget deficits and national debt as a tax on your children and younger Americans. Eventually, the bill will come due. The matter is when and how drastic the changes will be. If this time is different, we will need to course-correct our lifestyle choices and spending. However, regardless of who is in the White House and how much I love or am pained by them, I am confident in the ability of the greatest companies in the world to make money. People will keep spending and spending because they have to (essentials like food and shelter) or because they can't help themselves. Nobody knows how the current ridiculously self-inflicted market chaos will abate or what it will mean for the global economy. Hopefully, you are working with an amazing financial planning professional who has helped you create a long-term roadmap, one that's driven heavily by a well-diversified portfolio investing in the greatest companies from around the world, to reach all your financial goals. These strategies have always worked in the past; I am optimistic they will continue to work in the future. The economy can't be forecast, and nobody has figured out how to accurately and repeatedly time the stock market. Our best plan for financial freedom is to just ride this out together. The worse the market sell-off is, the greater the odds of above-average returns going forward, a lesson learned the hard way by many during the dot-com bust, 9/11, the Great Financial Crisis, COVID and many other stock market crises.
Yahoo
05-04-2025
- Business
- Yahoo
Haven't filed your taxes yet? Here are the pros and cons of filing a tax extension
If you're scrambling to file your taxes before the deadline, you're not alone. Each year, millions of Americans request a tax extension, which gives you an extra six months to file your return to the IRS. A valid tax extension moves your filing due date from April 15 to October 15. More than 20 million taxpayers filed for an extension in 2024, according to IRS estimates. In fact, it might even make sense to file an extension if you expect to file your return on time. 'You should consider filing an extension as part of your tax routine, especially if you have a complicated tax situation or might need more time waiting on tax forms, such as a Schedule K-1,' says Atiya Brown, a certified public accountant and owner of The Savvy Accountant in Mansfield, Texas. But if you might need your 2024 tax return for other reasons, those deadlines should be taken into account when deciding whether to file an extension. 'Be sure to consider external deadlines, such as financial aid applications or bank requirements, where a tax return may be needed. This could be a case where filing by April 15 is needed,' says April Walker, lead manager for tax practice and ethics with the American Institute of CPAs in Raleigh, N.C. Here are the pros and cons of filing a tax extension this tax season. Filing for a tax extension gives you more time to file your taxes. Instead of rushing to meet the April 15 tax deadline, taxpayers can take until October 15 to complete their tax returns. 'If information is missing or there are circumstances that are not conducive to gathering all of the data needed to file a complete and accurate return, filing an extension is often less expensive than rushing to file and then determining an amended return is needed later,' Walker says. Although tax extensions typically apply to federal tax returns, state requirements vary. Some states automatically grant additional time if a federal extension is filed timely, while others may require a separate state filing. Learn more: See your state's income tax and sales tax rates Keep in mind that filing a tax extension only gives you more time to file your tax return — it doesn't give you more time to pay your tax bill (more on this in the 'cons' section, below). Filing a tax extension can also extend the funding period for some retirement plans. In some cases, the additional time to fund retirement plans can help with cash flow planning, Walker says. If you own a business and want to fund a SEP IRA, the IRS allows you to do so by the extended due date of your business taxes. Business owners can contribute up to $69,000 to a SEP IRA in 2024 and $70,000 in 2025. Sole proprietors who report their income and expenses on Schedule C and file a valid tax extension will have until Oct. 15, 2025, to contribute to their SEP-IRA for the 2024 tax year. Note, however, that the extended due date varies depending on how the business files its tax return. Keep in mind that a tax extension does not extend the deadline for funding an individual retirement account (IRA). The deadline to contribute to a traditional or Roth IRA for the 2024 tax year is April 15, 2025. Learn more: Roth IRA rules you should know during tax season Filing an extension prevents the IRS from imposing the costly failure-to-file penalty, which is assessed if you fail to file your tax return by the deadline. The failure-to-file penalty is a hefty 5 percent of your unpaid taxes every month, up to a maximum penalty of 25 percent. While a tax extension does protect you from failure-to-file penalties, you'll still face failure-to-pay penalties and interest on any unpaid taxes until the balance is paid in full. The failure-to-pay penalty, however, is 0.5 percent of the unpaid balance every month — much lower than the failure-to-file penalty. Learn more: Can't pay your taxes? 4 ways to avoid major penalties While an extension gives you more time to file, it doesn't give you more time to pay. Any taxes owed must be paid by the original due date, generally April 15, to avoid potential late payment penalties and interest. 'If you owe, you should pay with your extension filing. Doing so will reduce or eliminate any interest and penalties you incur as those are calculated based on the original filing deadline date,' Brown says. If you're not sure what you owe, you have this option: Pay 100 percent of your 2023 tax bill — or 110 percent of your 2023 tax bill if your adjusted gross income was $150,000 or more ($75,000 or more if you filed using the married filing separately tax status). If you pay that amount by the April 15 deadline, then no matter what your 2024 tax bill ultimately ends up being, you won't owe underpayment penalties. Or, if you prefer, there's a different safe harbor: Pay 90 percent of your 2024 tax bill by April 15 — that's also a way to make sure you avoid underpayment penalties. One major drawback of filing a tax extension is that taxpayers expecting a refund must wait longer to receive it. Due to the recent IRS employee layoffs and the Trump administration's plan to slash even more IRS staff, some experts say that taxpayers who expect to receive a tax refund should file as soon as possible. That said, tax professionals haven't reported widespread processing delays. 'Despite the IRS staffing reductions, my clients haven't experienced unnecessary refund delays,' Brown says. 'However, I always encourage my clients to file their returns as quickly as possible if they want timely refunds.' Learn more: Tax refund schedule: How long it takes to get your tax refund While filing a valid tax extension provides more time to submit your tax return, it can also cause you to procrastinate even more. The extra time may cause some taxpayers to delay gathering their tax documents, and to push their tax returns further down the 'to-do' list. But if you file a tax extension, it's a good idea to start gathering your tax documents sooner rather than later and think about the best way to file — whether using tax software, a tax preparer or one of these five ways to file your taxes for free — to meet your new tax deadline. Failing to file by the extended deadline may result in additional penalties. Need an advisor? Need expert guidance when it comes to managing your money? Bankrate's AdvisorMatch can connect you to a CFP® professional to help you achieve your financial goals. Learn more: A checklist of tax documents you'll need to file your tax return Filing a tax extension is easy and free. You can file an extension online or by mail. Either way, you want to use Form 4868. You can file Form 4868 in a few different ways: For free, using IRS Free File online. Even if your income makes you ineligible to use Free File to file your tax return, you can still use Free File to file an extension for free. Through a tax professional, such as a certified public accountant or enrolled agent. By snail mail. The IRS considers the extension valid as long as the form is postmarked by the due date, April 15, 2025. It's wise to send your Form 4868 by certified mail to have proof of submission.
