Self-Employed Retirement Plans

A 2015 TD Ameritrade survey found that 28% of self-employed people do not currently save for retirement and that an additional 40% save what they can afford whenever they can afford it. There are a number of understandable reasons why 68% of self-employed people do not have a regular retirement savings plan, but here are two common ones.  First, if the business is new, there are often severe cash-flow challenges.  Second, owners personally deal with most or all of their business issues.  This leaves no time for what some time-management experts call the important, but non-urgent issues.

Nonetheless, most self-employed people will retire at some point. So, it’s a great idea to start saving for retirement as soon as possible.  Not only will this enhance your retirement lifestyle, but it will also lower your current taxes and create an investment that can grow on a tax-deferred basis.

There a several ways to save for retirement. These include SIMPLE (Savings Incentive Match Plan for Employees IRA), SEP (Simplified Employee Pension IRA), 401(k) and Defined Benefit Plan.  Naturally there are pros and cons for each approach.

Many self-employed owners like the Solo 401(k) – also called a Self-Employed 401(k) or a One-Participant 401(k). It’s a traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse. These plans have the same rules and requirements as any other 401(k) plan (except for an exemption from ERISA (Employee Retirement Income Security Act of 1974) reporting.)

A Solo 401(k) allows you to contribute both as an owner and as an employee. This means that in 2016, you can contribute up to $18,000 ($24,000 if you’re 50 or older) as an employee and you can contribute another $35,000 as an employer.  That equals $53,000 in annual savings ($59,000 if you’re at least 50).

Now if your business is too small to need the generous contribution limits of a Solo 401(k), you still have some simple retirement-plan options. Also, if you’re simply too busy running your business to mess with this, we can help you get started.  Guidepost Financial Planning has helped other clients properly set up self-employed and other small business retirement plans and we’d be pleased to advise you on this and any other financial matters.  Please visit our website or give us a call at 970.419.8212 so that we can discuss your financial goals in a no-charge, no-obligation initial meeting.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.