If you are self-employed, ten-to-one you see freedom and money as tools to achieve your goals.
That freedom you enjoy as someone who is self-employed extends to your participation in retirement schemes like KiwiSaver and that means you have to make some conscious decisions that an employed person might not ordinarily need to think about.
Don’t put off making these decisions as there are ways to help manage your finances and ensure you receive the benefits of KiwiSaver while being self-employed.
If you do not receive payments that you deduct PAYE from, KiwiSaver contributions are voluntary - you determine what your KiwiSaver contribution will be by reaching an agreement with your KiwiSaver provider.
Bear in mind, however, that some KiwiSaver schemes require a minimum contribution level that you will have to make depending on who you choose. As a self-employed person not receiving PAYE amounts, you will not be entitled to receive employer contributions but you may still be eligible for the annual Government contribution.
Set up a limited liability company
If you set-up a limited liability company, you can make yourself an employee of that company and have the company deduct PAYE. This means your company will have to deduct both your compulsory employee contribution for KiwiSaver (you can choose to contribute either 3, 4 or 8% of your before tax salary or wages), as well as the three per cent ‘employers’ contribution. You of course get to choose the KiwiSaver scheme you wish to belong to.
The upside of this is that it can make it easier for you to keep your business and personal finances separate. Paying yourself a fixed salary can make budgeting easier too, and income from bumper months should be there to get you through the tighter times.
KiwiSaver contributions holiday
If business gets a bit slow or you’re going through a tough time, but still on the PAYE system through your company, you can - like all employees - apply for a KiwiSaver contributions holiday which allows you to stop contributions for between three months and five years. When it expires, the Inland Revenue Department will advise you and contributions will start again.
Take advantage of Member Tax Credits
KiwiSaver has some great features that make it an attractive and easy way to save for your retirement. One of these features is the annual Government contribution called a member tax credit. If you are eligible, the Government will make an annual contribution to your KiwiSaver scheme account of up to $521.43.
You need to contribute a minimum of $1,042 into your KiwiSaver account between 1 July and 30 June each year to receive the maximum amount of $521 (you get 50c per $1 contributed up to this amount). It’s a good move because, it means the Government could in effect be topping up your KiwiSaver account by 50 per cent.
Don’t leave it too late to qualify for the maximum member tax credit, or better still, set aside a regular minimum monthly payment of $87 per month to get you there.
An important thing to watch for when it comes to maintaining KiwiSaver continuity while a self-employed person is accountability - there’s no boss to deduct your contributions.
This ‘accountability’ role could be filled by a financial adviser who can support and mentor you through the process and provide you with alternative strategies when necessary. He or she should have experience working with other self-employed people and can pass on what they have learned from the examples of others.
In fact, a study called KiwiSaver: Consumer Choices by Claire Matthews, School of Economics and Finance at Massey University, found that the “self-employed were more likely to have joined (KiwiSaver) on the recommendation of their financial adviser”.
The information is of a general nature and does not constitute financial advice or other professional advice. Before taking any action, you should always seek financial advice or other professional advice relevant to your personal circumstances.