Getting Started

An entrepreneur’s guide to building your own benefits package

Jumping ship from your 9-to-5 can feel like you’re jumping off an actual ship into the middle of the ocean.

You’re plunging straight into waters filled with vast unknowns:

  • “Where am I going to get my income?”
  • “How long could I possibly do this?”
  • “Oh my god, is that a shark swimming toward me?”

Okay, I’ll stop it with the ocean metaphor. Point is, leaving your job to pursue your dreams of entrepreneurship is scary —  especially for a new entrepreneur.

One of the scariest aspects: How you’re going to deal with losing your company’s benefits.

Without the helpful counsel of a human resources team, you’re going to be on your own when it comes to navigating the Kafka-esque world of health insurance and retirement. It can seem so daunting that you might even put it off entirely.

HOWEVER, having insurance and retirement set up ensures you’re invested in your future — which is one of the most crucial things you can do for yourself and your business right now. When you’re starting a business, you don’t want to jeopardize it by not being insured or ready for the unpredictable.

That’s why I want to get into exactly how to build your own benefits package as a solo entrepreneur (that means no other employees) and walk you through the options that are available to you.

Health insurance

This is a crucial benefit that is easy for new entrepreneurs to put off getting when quitting their jobs. I have advice for them: DON’T SLEEP ON YOUR INSURANCE.

As an entrepreneur, you are your own business. Knowing that if you get sick or injured your business and livelihood won’t take a huge hit is crucial psychologically, and it helps hedge against danger if and when that does happen.

That’s why having a health insurance plan is so important.

Below are a few options for affordable health insurance.

Healthcare Marketplace

Since the Affordable Care Act (ACA) passed in 2010, entrepreneurs have (mostly) had the opportunity to find a health insurance plan that fits their budget.

In fact, the government’s website Healthcare.gov even has an entire page dedicated to self-employed citizens to help them find insurance.

Worried you don’t fit the bill? Fear not. The ACA clearly states on their website that self-employed individuals cover entrepreneurs of all stripes.

“You can enroll through the Marketplace if you’re a freelancer, consultant, independent contractor, or other self-employed worker who doesn’t have any employees,” the site reads. “You’re considered self-employed if you have a business that takes in income but doesn’t have any employees.”

You’ll have 60 days after you leave your job to enroll in your state’s marketplace via the ACA during a “special enrollment period.” If you’re planning on finding health insurance through the ACA, be sure to do it within 60 days.

To get started, though, head to Healthcare.gov and fill out the application to see if you qualify for “premium tax credits and other savings” on your health plan.

They’ll also give you a variety of options for health insurance plans based on where you live. This gives you an opportunity to research each health insurance company and the coverage it provides.

If you find the Healthcare Marketplace daunting, consider using a service like Stride Health. This California-based startup is focused on helping entrepreneurs find great health insurance options within the ACA. Its simple interface allows for a much easier and intuitive platform to sign up for health insurance than Healthcare.gov.

COBRA insurance

Don’t let the scary name fool you. The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives departing employees the opportunity to continue paying premiums on their health insurance and keep their existing plan for up to 36 months.

There is a catch, though: COBRA can be a bit more expensive than other plans. You’ll have to pay the entire cost of your old company’s group plan. So that includes the amount you were paying, PLUS the amount your employer paid, as well as administrative costs on top.

To keep your insurance plan through COBRA, you’ll have to contact your health insurance company within 60 days of leaving your current job. The health insurance company should have given you information about COBRA coverage when you first entered the plan.

Within 14 days of telling your insurance company you’re choosing to use COBRA, they will give you an election notice. This provides you all the information you need regarding your health insurance options going forward.

From there, you have an additional 60 days to return the election notice to your health insurance company. Once you do, you’ll be able to keep your insurance plan for a predetermined amount of time.

NOTE: Whether or not you’re eligible for COBRA boils down to if you undergo a qualifying event (like getting fired or quitting) AND your insurance plan. That’s why it’s important to discuss your eligibility with your insurance company first.

BONUS: Health savings account (HSA)

An HSA is a tax-advantaged savings account that allows you to use a separate account to pay for certain medical expenses. It’s provided to people enrolled in high deductible health plans (HDHP). So if you’re enrolled in an HDHP, you can take on an HSA for even more savings.

The difference between an HSA and a regular savings account: An HSA allows you to contribute pre-tax income and withdraw money tax-free when you use it to pay for qualified medical expenses.

When you sign up for an HSA, you typically get a debit card to pay for things like preventative care visits and prescriptions.

If you still have the money in the account when you’re 65, you can withdraw it without incurring any financial penalties.

As of November 2018, you can contribute $3,450/year for individuals and $6,850/year for families to an HSA.

Retirement

Retirement is an area of investing that too many people ignore — much to their later regret.

A recent report discovered that 59% of 60- to 70-year-old Americans expressed regret about the way they saved (or, more specifically, didn’t save) for retirement.

And when I see that 34% of entrepreneurs have no plan for retirement, I just want to grab them by the shoulders and start screaming at them about the importance of a Roth IRA and diversified portfolios. That’s because saving for retirement is something you can do now to ensure you’re financially comfortable in the future.

Instead, I’m going to walk you through a few of your best options when it comes to saving for your retirement so you don’t end up regretting it later.

Individual 401k

Also known as a Solo 401k, this is a tax-advantaged retirement plan available to self-employed individuals with no employees — and it works a lot like a traditional 401k.

You contribute pre-tax income and pay taxes only when you withdraw it at retirement age. This gives you an incredible tax advantage when it comes to compounding growth on your investment.

The biggest difference between a traditional 401k and an individual 401k is that you don’t have the benefit of an employer match and your spouse is allowed to contribute as well.

As of 2018, you can contribute a maximum of $18,500 a year to your Solo 401k if you’re under the age of 50. On top of that, your business is allowed to make a 25% annual profit sharing contribution, up to a max of $55,000.

If you’re older than 50, you can contribute up to $24,500. With the profit sharing contribution from your business, you can have a maximum of $61,000 in contributions annually.

Not bad for a self-employed retirement option.

Simplified Employee Pension IRA (SEP-IRA)

Like a Roth IRA or Traditional IRA, a SEP-IRA is a tax-advantaged retirement account. Unlike those other accounts, though, a SEP-IRA has a much higher annual contribution limit.

You contribute after-tax income and don’t pay taxes when you withdraw it at retirement age — which is an incredible tax advantage.

Your contribution limit as an individual is 25% of your earnings for the year, up to $55,000. Compare that to the $5,500 limit you have on a Roth or Traditional IRA, and you can see that it’s an amazing opportunity to earn more money for retirement.

It’s worth noting that you should also invest in a Roth or Traditional IRA if you have the money. The more tax-advantaged investments you make, the better positioned you’ll be when you eventually retire.

Don’t sleep on your benefits

Investing can be a crazy and confusing world. To help out, here are some of our best resources for ensuring you’re ready for your financial future, from our sister site, I Will Teach You to Be Rich:

Now, we want to hear from you: Are you an entrepreneur about to jump from your 9-to-5 to work on your business full time? What issues are you worried about? How are you going to solve them?

Leave a comment down below and we might write an article addressing your problem in the future.

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Tony, thank you for addressing such an important topic. I want to address healthcare options for digital nomads and expats, which is typically an overlooked group of Americans.

Like myself, millions of Americans live outside of the United States on a full-time basis. Some Americans can access their adopted country’s healthcare system. For example, temporary and permanent residents of Mexico can apply for IMSS, which is the premium national healthcare system in Mexico.

Another option is to buy a high level travel insurance plan or an international health insurance plan, but this is usually the more expensive option. However, it could be less expensive than what they are currently paying, depending on that person’s anticipated needs and emergency care.

You contribute after tax income to a SEP IRA? I thought it was pre-tax?

I’m curious what the pros and cons of opening a SEP IRA vs a Simple IRA?

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