How to Plan for Retirement When You’re Self-Employed

Being self-employed doesn\'t mean you can\'t set up realistic retirement plans.
Retirement Plans for Self-Employed
Being self-employed doesn’t mean you can’t set up realistic retirement plans.

Being self-employed is convenient. You get to set your own schedule and have the flexibility to switch things up in an instant. One of the drawbacks of being self-employed is planning and saving for your own retirement. But don’t get discouraged. Saving for your retirement is possible even if you’re self-employed. There are still options to choose from that can help you with significant tax benefits.

All you have to do is pick the right one for you. It may sound confusing, but the hardest part really is just choosing a plan and sticking to it. Here are a few retirement plans to check out if you’re self-employed:

Simplified Employee Pension (SEP IRA)

A simplified employee pension, also known as SEP IRA, is a simple way to put aside pre-tax savings. You can contribute as much as 25% of your net self-employment income or up to $53,000 (for 2015 and 2016). This plan allows flexibility for making a larger or smaller contribution depending on your profits. You can benefit from tax-deferred contributions and growth until you begin withdrawals that can start at age 59 1/2 instead of having to wait until age 70 1/2.

This plan is great for self-employed individuals who have just a few employees or none at all. If you do have employees then you will need to include all of your employees in the retirement plan. You won’t be able to contribute a higher percentage to your own account than you do to theirs, which can get expensive for self-employed people.


A SIMPLE IRA Plan, also known as a Savings Incentive Match Plan for Employees, is a type of traditional IRA for self-employed people and small business owners. SIMPLE IRAs have higher contribution limits than traditional and Roth IRAs and are cheaper to set up and run unlike other retirement plans. Your contributions in this retirement plan are tax deductible and your investments grow tax deferred until you are ready to withdraw for your retirement.

A SIMPLE IRA allows you to put all of your net earnings from self-employment into this type of plan. You can contribute up to $12,500 in 2015 and 2016, plus an additional $3,000 if you’re over 50 years old. It also allows employers to make a contribution on their employee’s behalf as either a 2% flat contribution or a 3% matching contribution. You can open a SIMPLE IRA through a bank or financial institution from January 1 through October 1.

Individual or Solo 401(k)

Don’t forget about individual or solo 401(k) plans if you’re self-employed too! These are essentially the same as other 401(k) plans, but because there are no employees who work for your business it is exempt from discrimination testing. You can also contribute more because you are the employer and employee and you have the flexibility of how much or how little you want to contribute year to year.

With an individual 401(k) you can make contributions up to $18,000 for the year, plus up to $6,000 if you’re 50 or older, either on a pre-tax basis or as a designated Roth contribution. You can also contribute up to an additional 25% of your self-employed net earnings for a total contribution of $53,000 for 2015 and 2016, including salary deferrals.

Defined Benefit Plan

Another way to plan for your retirement is through a defined benefit plan. These resemble old pension plans that can work for certain self-employed people. A defined benefit plan allows the self-employed individual to contribute much higher limits than other traditional retirement plans. Depending on your age, you can contribute more than $100,000 per year for retirement. You can also contribute to a defined benefit plan while contributing to other plans like a SEP IRA or 401(k). Although this plan has its positives, it also has a few negatives.

It can be expensive to run and complicated to set up, and you are stuck contributing at a certain level whether or not your finances are up or down. If you have employees working for you then you must make contributions on their behalf, which can also get expensive. Ideally, this plan is great for self-employed people who have no employees and obtain high, stable profits and can afford to put away a big chunk of their money for retirement.

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