I'm self-employed...what retirement plan options do I have?
As a self-employed person, you have many of the same options as employees in regards to tax-deferred retirement plans.
Below is a list of retirement plans to consider.
Disclaimer: This list is not exhaustive, but represents the most often-used, simplest options. This list is intended to provide basic information. Check with your financial advisor for rules and regulations as they apply to each. Figures represent 2020 tax year information.
Solo 401k (generally best for those with no employees)
- Allows salary deferral contribution amount up to $19,500, plus an additional $6,500 for those 50 years and older
- Allows additional contribution up to 25% of net self-employment earnings
- Max contribution is $57,000 ($63,500 if age 50 and older)
- Can do Roth or Regular contributions to determine if pre-tax or post-tax
- If employed separately, employee contributions count toward $19,000 max
- Once account has $250,000, additional filing requirements apply
- Loans and hardship distributions can be taken against account like regular employee 401k’s
- Exempt from discrimination testing if no full-time employees other than spouse (employees must be under age 25 or work less than 1,000 hours per year)
- If full-time employees, discrimination testing applies and contributions must be made to employees as well
- Generally must open account by year end; can fund with tax return filing
SEP IRA (generally best for those with no, or few employees)
- Allows contribution up to 25% of net self-employment earnings
- Max contribution is $57,000
- Pre-tax contributions
- If employed separately, SEP contributions don’t interfere with 401k contributions
- Must contribute for all eligible employees (21 years old, employed by you 3 of past 5 years, earn $600+)
- Generally can open account and fund with tax return filing
Simple IRA (generally best for those with up to 100 employees)
- Allows contributions of all net self-employment earnings up to $13,500, plus an additional $3,000 for those 50 years and older
- Allows additional contribution of 2% fixed or 3% matching
- Additional contributions for yourself must be same type and rate as contributions for common-law employees (match salary reduction contributions dollar-for-dollar up to 3% of net earnings; or make non-elective contribution of 2% of net earnings)
- Pre-tax contributions
- Great plan to offer as perk for employees
- Generally must open account by October 1; can fund with tax return filing
You’ll want to consider each of the above in combination with regular retirement plans, such as employee 401k’s, Traditional IRA’s, and Roth IRA’s.
Contact us if you have any questions!