Retirement Plans for Self-Employed People

Nov 08, 2023 By Triston Martin

Being self-employed grants you a certain amount of independence; however, it doesn't grant you the opportunity to skip off saving for retirement. It makes saving money much more vital: Unlike an employee with access to the 401(k), you're all entirely on your own. Many retirement plans are open to entrepreneurs and independent contractors, and those who operate independently outside of employment. These plans can provide tax advantages in the form of contributions; however, they have different rules and contributions limitations. It's crucial for those who are self-employed and those as gig workers to pick the plan (or of plan) that is most appropriate for their requirements and adhere to IRS guidelines for contributions. Self-employed individuals can also contribute to a tax-deductible brokerage account, but these accounts do not offer the same tax benefits as these types of plans.

Solo 401(k)

A solo 401(k) offers all the benefits of a business 401(k) and provides you with additional advantages. You can choose between traditional and Roth 401(k) choices that give you the option to contribute before-tax or after-tax funds. You can put your money into virtually every asset class. Select a broker who offers the option of a no-cost individual 401(k), which includes Fidelity or Schwab are great options - and you'll not have to pay additional costs.

With a single 401(k), you are able to contribute as an employee - up to $20,500 for 2022 - and an employer contribution that can be up to 25% of your company's profit with a maximum sum of $61,000 spread in both. Aged 50 or over can add another 6500 as a catch-up payment. As you will see, you could easily go over the limit of what the business's 401(k) plan is typically maxed out. Companies that are one-person or have only one person with a spouse. It is a good option for those working on a side project and those who make enormous cash.


The SEP-IRA allows the self-employed to establish a retirement account for themselves and their employees. The plan provides an opportunity to save tax-free and is governed by the same rules as the traditional IRA; however, it is a lot more expensive, with a $61,000 contribution limit for 2022. Additionally, SEP IRA won't preclude you from utilizing the traditional or Roth IRA (which you really ought to do).

The SEP-IRA allows the business to contribute employer funds to employees and the self-employed. The company can contribute less than 25 percent of its earnings or the maximum amount per year. It's an extremely accessible plan with numerous brokers providing access. There isn't a Roth option, and all employees must pay the same amount of contribution. It is more beneficial for self-employed with high earnings, particularly those who work in a single-person business.


SIMPLE IRAs offer a lower administrative burden, a higher contribution limit than Roth or traditional IRAs, and the capacity to make more contributions to your retirement account than that of employees. You can qualify to join the SIMPLE IRA if you are an independent worker or run a business with more than 100 employees. Employers and employees can contribute to the person's SIMPLE IRA:

Contributions to employees are limited to the amount of 100% of the payment or $13,500 in 2021 or less. The limit increases in 2022 to $14,000. Aged 50 and over may make an additional catch-up contribution of up to $3000. Employers can choose between making fixed contributions of 2% of the employee's compensation for earnings up to $290,000 in 2021 or $305,000 in 2022 and matching contributions as much as 3% of compensation.

Traditional and Roth IRAs

A traditional and a Roth IRA is a common options for those who have less than or as high as $6,000 per year. There are benefits for both: you'll be able to take tax deductions with the traditional IRA that you do not have to worry about when you retire. If you choose Roth IRAs, there is no tax deduction immediately. Roth one, there's no tax deduction immediately, and withdrawals, the following retirement are tax-free.

Defined Benefit Plan

This is a great option for those who are self-employed and want to save more per year than the usual contributions. In 2020, the maximum contribution will be $230,000. The contribution amount will be determined by the amount you'll receive when you retire, depending on your age and the expected return of your investment. Contributions to a retirement account are tax-deductible in many instances, and payouts in retirement are taxed as income.

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