The Best Retirement Plan for the Self-Employed

By on August 1, 2014
Retirement plans

When you’re self-employed everything rests on you. And while it’s great being your own boss, you also have to be responsible for creating a retirement plan in addition to all of the other things you do – but one you don’t want to overlook! You may want to set up a retirement plan, but unlike being fully employed and having your employer do it, you may not know how much you can afford to save. Also in the case of being newly self-employed, you may know how to go about setting up a retirement plan.

Whether you’re 25 or 55, it’s important to know how you can save for your retirement as a self-employed individual. Not planning adequately for the future is one of the biggest mistakes an entrepreneur can make.

It can be very confusing with all of the different options available, so we’ve put together a list of retirement plans, including some tax-favorable options for you to consider:

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A Simplified Employee Pension is known as a SEP IRA and is a great option for a solo self-employed hero. This account allows you to set aside as much as 25% of your net annual income in pre-tax savings. However, there is an annual maximum amount that can be saved in a year, regardless of total net income. A SEP IRA cannot be a Roth IRA.

Advantages: There’s great flexibility in the fact that you don’t need to fund your account until you’re filling out your tax return, meaning you can put more or less in than anticipated, depending on your business circumstances that year. SEP IRA contributions also don’t interfere with any 401(k) plans you already have in place with an employer.

Disadvantages: If you have employees, you’ll have to make the same percentage of contributions to all covered employees. This is because a SEP IRA acts as an employer contribution.

Solo 401(k)

If you’re able to set a significant amount of your earnings aside, this could be the ideal option for you. As an employee, you can contribute a certain amount per year to your 401k, but as the employer, you can also contribute another 25%, up to the annual limit. Over 50s get another break, allowing them to contribute a further few thousand dollars.

Advantages: Aside from the generous allowances, you can also opt to roll the previous 401(k) plans from other employers into the one Solo 401(k) plan. These plans sometimes also offer the Roth option, and it’s possible to take a loan out against your 401(k), should your funding situation change.

Disadvantages: If you’re still working a day job on top of your business venture, this can be problematic as you might already be saving the max with your current employer. You only get one combined employee contribution limit to a 401(k) plan regardless of the number of jobs worked.

Simple IRA

This type of IRA is designed specifically for small businesses and self-employed individuals. It also offers a good incentive match plan for employees, so is ideal if you have only a few employees. All contributions are tax-deductible, and investments grow tax-free until you start making withdrawals in retirement.

Advantages: This option also allows an added tax-free amount for those over 50. Paperwork is relatively easy to complete and contributions usually only have to match a low amount of the employees pay (around 3%).

Disadvantages: You can’t contribute to this if you’ve already paid your 401(k) contributions at your day job. There’s also a hefty 25% penalty for withdrawing from a plan in the first 2 years.

IRA Gold

Similar to the Simple IRA plan, an IRA gold plan basically involves investing a percentage of your earnings in gold. The same rules apply as for the Simple IRA, so the advantages and disadvantages are similar. However there is one differing benefit of investing in an IRA Gold plan, and that’s the return on investment. As the price of gold has risen above inflation (and without crashing) for most of the last century, it’s safer to hedge your bets on a larger return from gold than from paper currency. Have a look at for more information on this type of IRA plan.


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The Best Retirement Plan for the Self-Employed