Three Retirement Plan Options For The Self-Employed

Three Retirement Plan Options For The Self-EmployedRetirement is an area we have always slacked in. We’ve never saved or research retirement options as aggressively as we would have liked.

That is all going to change now.

We still plan on living an enjoyable life, but we want to start investing more of our money and seeking out the best self-employed retirement plan for our situation.

Below are some of the different self-employment retirement plans that may be available to you:

Solo 401(k) Plan

This is the retirement plan that most people have probably heard of.

With a solo 401(k), you can contribute up to $17,500 in 2014 and $18,000 in 2015. You can also contribute an extra 25% of your net earnings from self-employment for a maximum total solo 401(k) contribution of $52,000 for 2014 and $53,000 for 2015 if you are under the age of 50. If you are 50 or older, then you can make an additional contribution of $5,500 in 2014 and $6,000 in 2015.

Here are some other things you may want to know about the solo 401(k):

  • The solo 401(k) is a self-employed retirement plan for a person who has no employees.
  • You must open a Solo 401(k) by December 31st.
  • The solo 401(k) is a great plan for a self-employed person because the maximum you can contribute to the plan is high.
  • Your money grows tax-deferred in this plan until you reach retirement age.

Simplified Employee Pension Plan (SEP)

I’ve had a SEP plan for a few years now. Before I started working completely for myself, I had a SEP at my day job. I worked for a very small investment firm where I was able to have a pretty nice retirement plan there.

You can have a SEP IRA whether or not you have employees. With a SEP plan, if you have employees, you will be required to contribute retirement funds towards their accounts as well. Employees do not contribute anything, only the employer. This is why I loved my SEP plan at my day job so much. It was completely free money and you are required to receive the same exact percentage as everyone else at your company.

With a SEP plan, you can contribute as much as 25% of your net income from self-employment, up to $52,000 in 2014. For 2015, the number is $53,000.

Here are some other things you may want to know about having a SEP:

  • You can create and fund a SEP plan until the tax-filing deadline. If you file an extension, you have until October 15.
  • Your money grows tax-deferred in this plan until you reach retirement age.
  • It is also easy to create, easy to maintain, and cheap to operate.

Savings Incentive Match Plan for Employees (SIMPLE IRA Plan)

With a SIMPLE IRA Plan, you can put up to $12,000 in 2014 of your net income into the plan, and up to $12,500 for 2015. If you are 50 or older, you can contribute an extra $2,500 in 2014 and an extra $3,000 in 2015.

You can have a SIMPLE IRA whether or not you have employees. The SIMPLE IRA Plan is usually best for those who make less than around $50,000 a year because of the lower contribution limits.

How do you save for retirement? Are you on track?


Please keep in mind that I am not a tax professional. This post is meant for informational and entertainment purposes. Always do your own research and seek out help if you need it.


Three Retirement Plan Options For The Self-Employed — 6 Comments

  1. I save using the SEP-IRA but have been debating whether I should switch to a solo 401k. I know that there is additional reporting required to the IRS once the amount held in a solo 401(k) exceeds over $200K or some number near that.

  2. In Australia we have one official retirement savings option: a superannuation fund. There are many, many choices available within that financial category though that can make the whole thing very confusing.

    Plus, once your money is in, you can’t get it out until either you reach retirement age (which our current government is seeking to increase, again) or you meet a very convoluted set of criteria. And, they keep changing the rules…

    I prefer a more flexible approach to saving for retirement so I’ve opted for some superannuation, personal investments and being debt free well before I retire. I also don’t want to have to wait until I’m 65 to be ‘allowed’ to retire.

    No-one has a crystal ball so we all need to be mindful of what’s going on in the economy and be a bit more self-reliant. My income has been all over the place since becoming self-employed so I’m not exactly on track with my retirement planning. But, it’s never far from my mind.


  3. I max out 401k at work and Roth’s for my wife and I at home. Done that for 6 years, plus my company gives me 16% of my salary each year in retirement. I specifically picked my company based solely on the retirement benefits. Having worked at this place for nearly a decade and maxing out the last six plus the growth in the market has us so far ahead of where I thought I would be at this time. I know life doesn’t always go great all the time and can turn around so we’re taking advantage while times are good.

  4. Pingback: Tax Tips For Self Employed Plus Self Employment Taxes Reminder

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