Self Employed Retirement Planning

My friend and I usually banter about sports, business, and life in general. Things took an interesting turn yesterday when he bashfully asked me about retirement. My eyes lit up. I’m no expert, but I am proud to say I know a thing or two about 401k’s, IRA’s, and mutual funds. Unfortunately, our situations are drastically different. He runs his own business. Perhaps one day when Buck Inspire really takes off, I can join him. But until then, I’m still working for the man. However, since my friend seemed concerned about the future, I wanted to dig up some information for him.

No Debt MBA sent me a link from the IRS. Why not get it straight from the horse’s mouth? Our favorite government agency breaks down Simplified Employee Pension (SEP), Simple Plans, and Qualified Plans.

In 401(k) Plans For The Small Business Owner goes over requirements, components, and does comparisons of different plans in an easy to understand table. In Self Employed Retirement Plans, the plans are clearly laid out with features, advantages, and disadvantages.

As I cleared my head with all the different terms (some plans are known by several different names), I realized that my friend is the only employee. In Finally a 401(k) plan just for one, there are a collection of stories and examples to help clarify the concepts. Hopefully this will make his decision, and yours, just a little easier.

Final Thoughts

After getting familiar with your options, you need to take a good look at your situation and see what works best for you. If you want to contribute more than the IRA limit, these plans are very beneficial to you. Be aware of contribution limits, administrative fees, and whether you want to be dealing with tax deferred or after tax contributions.

Stay Inspired!
Buck

16 thoughts on “Self Employed Retirement Planning”

  1. One of the most overlooked options is selling the business. Presuming you work a lifetime building a business, it has value and can be sold. One of the best parts of selling a business is you are eligible for capital gains tax and you can offer financing. It could end up like an annuity. Since nothing is guaranteed, you should utilize all the deferred plans(401K, SEP IRA etc).

  2. If his business is profitable, he can put away tons of money in the 401k. I think up to $45k or something like that. He’ll save on tax too. I don’t know enough about that because I’ve always worked for the man. :(

    1. The maximum contribution for a solo 401k is $49000 or $54500 if age 50 or older which can be a huge tax savings.

      Breaks into $16500 salary deferral (extra $5500 for age 50+) + 25% of compensation up to the max.

  3. Being self-employed myself I’m a big fan of the SEP IRA. I love being able to sock away a little pre-tax money. I usually try to find a balance between that and Roth and which is kinda the opposite and fund both as much as I can (depending on how well I do that year).

  4. The plans are pretty good for self-employed individuals who are making a lot money, they can save more money for their retirement because they can contribute more and potentially retire earlier than the employee counterparts!

    I guessed another benefit thrown by the government for small business owners.

    It’s good to know that there are a lot of options for self-employed not just the IRA.

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