4 Retirement Plans for Self Employed Individuals

Just because you do not have an employer-sponsored retirement plan, you are not free from considering retirement plans for self-employed persons. Failing to contribute to a retirement account means one of two things: you are not saving for retirement, or you are saving but not receiving maximum benefits for doing so. Either scenario ends up hurting you in the long run. Consider these options to rectify the challenge of lacking benefits as a self-employed professional.


The Self-Employed Pension IRA (SEP IRA) is a simple retirement plan that allows you to deduct up to 20 percent of your income. If you incorporate your business, you can deduct up to 25 percent of your income. The percentage can be changed on an annual basis, which saves you from having to contribute if your business does not turn a high profit in a given year. The most you can contribute as of 2010 is $49,000 on an annual basis.

#2 Solo 401k

A solo 401k can deliver the benefits of a 401k--namely, high contribution limits--without the structure of a large 401k provider. With this option, you will be eligible to contribute up to 100 percent of your first $16,500 in compensation (figures subject to change). You can then contribute as if you have an SEP IRA. This means you may contribute another 25 percent of compensation income from your corporation or 20 percent of self-employment income. 

#3 Roth IRA

Any individual can set up an independent retirement account, and a Roth IRA is a great option. With a Roth structure, you can contribute up to $5,000 of your income, regardless of the percentage of income this accounts for. The main benefit is not on the front end; these accounts are not tax deductible. On the back-end, however, you will pay no taxes on withdrawals. Roth IRAs are a great option for anyone currently in a low tax bracket who would prefer to reserve tax benefits in the future. They are also a great option for an individual who is not a primary bread winner and therefore has a low salary but a high amount of proportional income to contribute.

#4 Spousal Deductible IRA

If you are married, your spouse contributes to a retirement plan, and you do not have the option, you can contribute $5,000 annually to a spousal deductible IRA. This account presents tax benefits on the front end, and you can deduct the contribution as long as your adjusted gross income is below the threshold of $167,000. This is again a great option for an individual who is not the primary bread winner in a family. In most scenarios, a Roth IRA will present a higher tax benefit. However, this is a good option if you file taxes jointly and are currently in a very high tax bracket. The deductions would apply now, when you need them most, and you would pay taxes in the future when you are ideally more able to pay the tax.

blog comments powered by Disqus