As a personal trainer, focusing on optimizing the human potential and longevity of your clients’ lives is your life’s work. Your passion and calling is noble, while at the same time it is important that you prioritize your personal long-term plans. For that reason, it is worth exploring retirement planning and better understanding retirement plans for self-employed personal trainers.
No matter where you are in life, thinking about retirement may seem so hard to seriously consider. The goal line is so distant and into the far-off future!
However, just like with with health & fitness goals, creating a plan is key when it comes to your financial planning goals. To go even further, to achieve any health & fitness goals, you need to understand the different ways of training, different types of equipment, etc.
The same is true for your financial planning & retirement goals. You need understanding.
Retirement plans and saving into them is one pillar of your overall financial plan. In this article, we aim to give you more clarity into this area.
Specifically, our goal is to provide you with a deeper understanding of the available retirement plans for self-employed personal trainers.
- There are several different options to consider when it comes to retirement plans for self-employed personal trainers.
- It is never too late (or early) to start saving for retirement as a self-employed personal trainer.
- If you are just starting out or have not yet started saving, a good first step is to open a Traditional IRA or Roth IRA, and start contributing what you can (up to the max limit).
- If you are a successful self-employed personal trainer and earn a decent income, consider either (1) a Owner-Only (or Solo) 401(k) Plan or (2) a SEP IRA.
What Is Retirement?
If you are a self-employed personal trainer, your values may be strongly aligned with prioritizing your health, fitness, wellness, and mental well-being above everything else. At your best, this is mostly true for you. We know it!
Therefore, you likely love what you do and may be able to work longer than most people (due to your great health).
However, there may be a time when you decide that you are ready to “retire”, “stop working”, or “make work optional”.
When you get to that stage in life, you will not have the same income that you have during your working years as a self-employed personal trainer. If you are great at what you do and are able to build a business that goes beyond yourself, you may be able to create a passive stream of income. However, that is not the case for most.
Ultimately, you will have expenses to cover when you “retire” (whatever that means to you). In order to cover those expenses, most people look to the following areas for income to live off of:
- Retirement Savings & Investments
- Social Security
- Passive Income (Rental Real Estate, Affiliate Marketing, etc.)
- Part-time work during retirement
In this article, we will not dive into each of these areas. However, our focus today will be on Retirement Savings & Investments.
Why Should I Care About Retirement As A Self-Employed Personal Trainer
For self-employed personal trainers, you should care about this area of your financial plan because you do not have the luxury of working for an employer (that provides benefits such as a 401(k) or employer-sponsored retirement plan). By not having this benefit, where company’s typically match retirement savings contributions, the burden is on you to save for retirement.
This can seem daunting at first. However, even if you have not yet started saving into any of the retirement plans for self-employed personal trainers that we are about to discuss, it is never too late.
Different Types Of Retirement Plans For Self-Employed Personal Trainers
The world of financial planning, retirement, investing, and personal finance can get very complicated. For some reason, it seems like the financial services world tries to make topics more complex than they actually need to be.
Yet, these types of topics are so important to understand for any adult, whether they are self-employed or not.
Below is a short outline of the most common types of retirement plans for self-employed personal trainers:
- Traditional IRA
- Roth IRA
- SEP (Simplified Employee Pension) IRA
- SIMPLE (Savings Incentive Match Plan for Employees) IRA
- Owner-Only or Solo 401(k) Plans
There are a lot of differences between each of these retirement plans. In addition, depending on your income, employment situation, and several different factors, one plan may be a better option for you.
The list above is not exhaustive, but in order to keep things simple and also highlight the more common options, we will focus on these five different retirement plans.
Traditional IRA For Self-Employed Personal Trainers
For anyone that is just starting out as a self-employed personal trainer and/or they have not even scratched the surface of retirement savings, starting off with a Traditional IRA (or Roth IRA) may be appropriate.
IRA stands for Individual Retirement Account, and these retirement plans allow you to save a certain amount of money each year into them based on IRS rules.
For Traditional IRAs, when you contribute money into your account, you are allowed a tax deduction for your contribution in that tax-year. This helps lower your tax bill as a self-employed personal trainer. Your contributions will grow tax-deferred and when you withdraw the funds (in retirement), you will pay taxes on the withdrawal as ordinary income.
With Traditional IRAs (like most retirement plans), you are penalized by the IRS if you withdraw the funds before 59 1/2.
Roth IRA For Self-Employed Personal Trainers
Roth IRAs are retirement plan accounts where your contributions are made with after-tax income. Therefore, you do not get a tax deduction when you make your contribution in a given tax-year. Your contributions grow tax-deferred, but when you decide to withdraw the funds (in retirement), your withdrawal is tax-free.
This tax-free element is one of the most appealing aspects of the Roth IRA.
However, the caveat to contributing to a Roth IRA is that you have to stay within the IRS income limits to be allowed to contribute to this type of account.
Therefore, if your income falls within these thresholds, in most cases it is more advantageous to contribute to a Roth IRA (as opposed to a Traditional IRA).
SEP IRA For Self-Employed Personal Trainers
A SEP IRA can be a great option as a retirement plan. The nice things about a SEP is that you are able to contribute more to this type of account than you are with a Traditional or Roth IRA.
For the SEP, you are able to contribute up to 25% of your net self-employment income. This can be a game-changer over a long, successful career as a self-employed personal trainer.
If you are a self-employed personal trainer and you do not have any employees, this could be a solid retirement plan for you to consider. It is easy to establish and administer, and it is also low-cost.
However, if you do have employees, having a SEP IRA would mean that you, as the employer, would have to contribute the same percentage (that you do for yourself) to your eligible employees.
SIMPLE IRA For Self-Employed Personal Trainers
A SIMPLE IRA is also a nice option to consider as a retirement plan, more specifically if you have employees. Just like the SEP, contribution limits are higher when compared to the Traditional IRA or Roth IRA.
However, for the SEP IRA all contributions into the plan are from the employer.
With the SIMPLE IRA, contributions are combination of the following:
- Salary reduction contributions, and
- Employer contributions via either (1) matching contributions or (2) non-elective contributions
This can get kind of hairy to dive into the weeds, but just know that if you are a self-employed personal trainer that has employees, you are held to stricter rules in providing employer contributions to your employers. Therefore, SIMPLE IRAs could be more expensive to administer (and manage) if comparing to other plans.
In addition, because the contribution limits are lower when compared to SEP IRAs, it may not be the most optimal plan.
Owner-Only or Solo 401(k) Plan
This type of retirement plan for self-employed personal trainers may sound complicated, but when understood, it can really help you save a lot towards your retirement.
If you are a successful self-employed personal trainer and make a decent living, you certainly want to consider this plan.
This type of plan can only be used if you are self-employed and DO NOT have any employees. However, you are able to include your spouse as part of the plan.
As the business owner wearing two hats (employer and employee), you are able to contribute up to $58,000 into the plan (2021, IRS).
Make sure to set up this plan prior to the end of the tax-year (12/31) in which you are contributing. Establishing the plan involves more steps when compared to the other plans noted above. However, it is certainly well-worth it if your financial situation aligns with the key benefits.
By utilizing this plan, you can deduct contributions from your taxable income. In addition, you will be able to start growing your retirement savings in a rapid manner.
Putting This All Together And Taking Action
By understanding what is all out there when it comes to retirement plans for self-employed personal trainers, you will start to feel more confident. We hope that is the case after reading this article!
There are a lot of different next steps that you can take. First, take a step back and figure where you are in your financial planning, retirement, or savings journey.
If you haven’t done much yet, start small.
If your financial life is complex, try to simplify things.
No matter where you are, it is never to late (or early) to take action.
As a self-employed personal trainer, you will likely live a long & healthy life. Start prioritizing how you will cover the expenses associated with your retirement (whatever that looks like for you).
Finally, start prioritizing your longevity, vision, happiness, and long-term plans.
Additional Reads & Resources
A Fitness Professional’s Guide To Retirement Planning
Retirement Planning For Personal Trainers
5 Plans For Independent Beauty And Fitness Pros To Save For Retirement
Tax Benefits For Self-Employed Personal Trainers That You Can’t Miss
11 Personal Finance Tips For Personal Trainers That Are Self-Employed
Year-End Tax Tips For Personal Trainers That Are Self-Employed
For more resources, you can always visit our “Resources” page.