Saving for retirement is more complicated when you’re self employed – mostly because there’s no employer to automatically set up a 401k for you. You’re your own boss! So it’s important to learn all the options available and get started today….(read more)

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Retirement Plan Options for Self-Employed Individuals: StreetSmarts

As a self-employed individual, planning for retirement may not always be top of mind. However, it is crucial to have a retirement plan in place to ensure financial security in your golden years. Fortunately, there are several retirement plan options available for those who work for themselves.

One popular option for self-employed individuals is the Simplified Employee Pension (SEP) IRA. With a SEP IRA, you can contribute up to 25% of your net earnings from self-employment, up to a maximum of $58,000 for 2021. This makes it a great option for those who have variable income, as you can adjust your contributions based on your annual earnings.

Another retirement plan option for self-employed individuals is the Solo 401(k), also known as an Individual 401(k) or Self-Employed 401(k). With a Solo 401(k), you can make both employer and employee contributions, allowing you to contribute up to $58,000 as of 2021, plus an additional $6,500 catch-up contribution if you are age 50 or older. This plan is ideal for those who want to maximize their retirement savings and have the ability to make larger contributions.

For those who want more flexibility and control over their retirement funds, a Simplified Employee Pension (SEP) IRA may be the best option. With a SEP IRA, you can contribute up to 25% of your net earnings from self-employment, up to a maximum of $58,000 for 2021. This makes it a great option for those who have variable income, as you can adjust your contributions based on your annual earnings.

Self-employed individuals may also consider a SIMPLE IRA, which stands for Savings Incentive Match Plan for Employees. With a SIMPLE IRA, you can contribute up to $13,500 as of 2021, plus an additional $3,000 catch-up contribution if you are age 50 or older. This plan is best for those with a small business and a few employees, as it allows for employer contributions as well.

In addition to these retirement plan options, self-employed individuals may also consider investing in a traditional or Roth IRA. With a traditional IRA, you can contribute up to $6,000 as of 2021, plus an additional $1,000 catch-up contribution if you are age 50 or older. With a Roth IRA, contributions are made with after-tax dollars, and qualified distributions are tax-free in retirement.

It is important to note that each retirement plan option has its own eligibility requirements, contribution limits, and tax considerations. Therefore, it is essential to consult with a financial advisor or tax professional to determine the best retirement plan option for your specific situation.

In conclusion, self-employed individuals have several retirement plan options to choose from, each with its own benefits and considerations. By carefully weighing your options and seeking professional advice, you can establish a retirement plan that aligns with your financial goals and provides peace of mind for the future. Whether you opt for a SEP IRA, Solo 401(k), SIMPLE IRA, or traditional or Roth IRA, taking steps to plan for retirement now will undoubtedly pay off in the long run.