Self Employed Retirement Plans

Estimated reading time: 3 minutes(Last Updated On: December 23, 2020)

While owning your own business has many benefits, it isn’t always easy. There are many things to consider when you open a business, and one of the most important factors to think about is your long-term plan. Because you are working for yourself, many of the retirement plans that are normally available to those working for a company are not available to you. This can often times make saving up for retirement a little more difficult because you don’t have an employer making contributions to your account on your behalf. Any money contributed is out of your own pocket. There are many other options available for the self-employed. Below are some of the most common retirement plans for those who are self-employed.

Individual Retirement Accounts


The most common way to save for retirement when you are self-employed is to open an individual retirement account (IRA). IRAs offer certain tax benefits that are comparable to the benefits you would receive in a traditional 401(k) you would get through an employer. In a traditional IRA, the contributions that you make towards your account are tax deductible, but in a Roth IRA the earnings and withdrawals are tax-free because you pay tax on the contributions. With both of these accounts there are certain contribution caveats and income limits that you should be aware of if this is the route you decide to take. The IRAs do have penalties for early withdraws as a way to keep your retirement funds in tact until they are needed.

Self-directed IRAs

While IRAs are a good option for more traditional retirement funding, self-directed IRAs are good if you want to use a wider variety of investment options. Some of these investments can include things like real estate and precious metals as well as the more traditional things like stocks and bonds. This method also allows you to invest in other small businesses although you cannot invest in your own business. The tax advantages of self-directed IRAs are fairly similar to those of the traditional IRAs otherwise. The IRS does have more restrictions on these accounts because of the wider array of possible investments.

Self-Employed 401(k)


Another option for people who are employed by themselves and have no additional employees is the self-employed 401(k). In this retirement account the paperwork is more straight forward and less expensive. In these accounts, because only you and a spouse can be working for yourselves, your contributions can be higher towards your account. If you have a broker that helps with your account, they can also invest in alternate assets for you to diversify your portfolio. This account is a good option until you decide you want to expand your business because you have to change accounts when expanding.

Although there are other investment options for self-employed people, these are some of the most common accounts that people choose to invest in for retirement. It is important to make well-informed decisions as this could determine the comfortability at which you live after retirement.

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