Saving for Retirement When You’re Self-Employed


Self-employed comes with benefits, from choosing your own hours to wearing comfortable pajamas while you work. However, being your own boss also means you are responsible for creating your own retirement savings plan. The good news is, there are ways to plan for retirement, even if you don’t work a 9-5 job. If you’re self-employed, you can still save for a secure future.

Retirement Plans for Self-Employed Individuals

Those who are self-employed have options when it comes to saving for retirement. These include some of the same vehicles open to employees, such as 401(k) plans. 

One-Participant 401(k)

Sometimes called a solo or individual 401(k), these plans are for one participant and work like a workplace 401(k). You make pretax contributions and are taxed when you begin making withdrawals, which begin at age 59½.

You can contribute to a one-person 401(k) twice: once as an employee of your own business and again as an employer. As an employee, you can put up to 100% of your annual earned income into the plan, up to a maximum amount set by the IRS (those ages 50 and up can make an additional catch-up contribution). You can then contribute as an employer of up to 25% of the maximum contribution limit. You simply use an IRS worksheet to calculate your limit for the year. 

Traditional or Roth IRA

Traditional and Roth IRAs differ in their eligibility rules, tax treatment and when money can be withdrawn without a tax penalty.

Traditional IRA: Contributions to a traditional IRA are generally tax-deductible unless you or your spouse has access to a workplace retirement plan or your income is above a certain threshold. You pay taxes when you withdraw the money, which you can begin at 59½. However, annual contribution limits are fairly low and vary by year.

Roth IRA: With most other retirement vehicles, you contribute pretax income that gets taxed when you withdraw the money in retirement. Roth IRAs work the opposite way: Contributions are made post-tax, but can be withdrawn at any time, tax-free. Withdrawn earnings may be subject to taxes and penalties if you are under 59½ and have had the account less than five years, except in certain situations. After 59½, money can be withdrawn tax-free. Maximum contributions rates also vary by tax year. You can contribute to a Roth IRA your entire life and never have to withdraw money from it, allowing you to leave money to your heirs.

Simplified Employee Pension (SEP)-IRA

An SEP-IRA is an IRA designed for self-employed people. You can contribute up to 25% of your net earnings from self-employment or $58,000, whichever is less. (You’ll need to do some calculations to determine your contributions.) These contributions are tax-deductible.

SEP-IRAs have higher contribution limits than many retirement plans, so you can save faster, but they don’t allow catch-up contributions.

Savings Incentive Match Plan for Employees (SIMPLE) IRA

If you received at least $5,000 in compensation from your business in each of the previous two years, you can make pretax contributions to a SIMPLE IRA, up to the IRS maximum of your net earnings from self-employment to the plan. (If you’re 50 or older, you are allowed a catch-up contribution.) In addition, you can either contribute up to a 3% match of your net earnings from self-employment or make a fixed contribution of 2% of net earnings from self-employment up to the IRS maximum contribution.Saving for retirement as a self-employed person is important. At Blue Waters Financial Group, we can help you decide what is best for you and help you get on track for your financial future. To schedule your no-obligation meeting and discuss your retirement income plan, just click on the link below or call us today at 704-790-2583 (BLUE

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