Retirement

Retirement Accounts for the Self-Employed

Working for yourself means no company 401(k), and access to plans that can shelter far more.

Working for yourself means there is no employer handing you a 401(k), but it also opens access to retirement plans designed for the self-employed and small business owners, some of which allow far larger contributions than a standard IRA. Knowing the options is the difference between under-saving and using a real advantage.

The common options

Several plans serve the self-employed. A SEP IRA is simple to set up and allows contributions based on a percentage of self-employment income, potentially well above the IRA limit. A solo 401(k), for a business with no employees other than a spouse, lets you contribute both as employee and as employer, which can permit large total contributions and often a Roth option. A SIMPLE IRA suits small businesses with a few employees. Each has its own rules, limits, and administrative weight.

Why the higher limits matter

For a profitable self-employed person, the standard IRA limit is often far too small to build adequate retirement savings. The SEP and solo 401(k) exist precisely to let business income be sheltered at a scale that matches real earnings, with the tax advantages of a retirement account. Not using them can mean paying more tax now and saving less for later than the rules actually allow.

Choosing

The right plan depends on your income, whether you have employees, how much you want to contribute, and how much administration you will tolerate. A solo 401(k) can allow more but involves more setup than a SEP IRA; a SIMPLE fits a small team. Because the limits and rules change and interact with your tax situation, choosing and setting one up is worth doing with your tax advisor.

No company plan means bigger options, if you use them.

This is general educational information, not personalized investment, tax, or legal advice. Consult a qualified professional about your situation.

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