Saving for retirement when you’re self-employed can be a little trickier than a traditional employer sponsored 401K. Fortunately, there are several options out there to ensure that you are prepared for the next stage of your life. Here are some savings options when it comes to retirement planning when you’re self-employed.
A 401k is still an option even if you are self-employed. This is geared towards employers who have no full-time employees other than the business owner and their spouse. Contributions can be made by both the business and the business owner. With this type of retirement account, you can receive the same tax benefits as a traditional 401k.
An individual retirement account is a great option for those who are self-employed. There are two main types, traditional IRAs and Roth IRAs. For traditional accounts, the money you put in there is tax deferred. This means that once you start making withdrawals, you will need to pay taxes on those funds. For Roth IRAs, you pay taxes on the money before depositing it in your account. Once you start making withdrawals, you will no longer owe taxes on these funds. IRAs can be opened through your financial institution or an investment broker (ex. Merrill Lynch, Ameritrade, etc.)
A Savings Incentive Match Plan for Employees (SIMPLE) is a great choice for small business owners who don't currently have a retirement plan in place. This type of savings features a higher contribution limit when compared to traditional IRAS. Employers are required to make some sort of contribution while employees have the option to contribute or not.
For small business owners with no or few employees, a Simplified Employee Pension Individual Retirement Arrangement is an option for them.This type of plan doesn't carry heavy administration costs for those who are self-employed and do not have employees. For those who do have employees, they must all receive the same benefits under this plan.
DISCLAIMER: This article is intended to be a helpful guide. If you have specific questions or concerns regarding your retirement planning, please reach out to a financial advisor.