Planning for Self-Employed Retirement Through IRAs

Planning for Self-Employed Retirement Through IRAs
  • Opening Intro -

    Self-employed individuals are gradually rising in number.

    While they have their hands full with managing and running a successful business, the thought of saving for retirement doesn't cross their mind.

    Looking into different IRAs such as Roth IRA or SEP IRA is a must before it's too late.


The difference between having a successful or a failed business comes down to how well you handle the cash flow. While you may have a well-chalked out plan on how to run your business, in this article we will tell you how to go a step further and plan a financially secure retirement too.

Getting Into the ‘Retirement Planning’ Game

Being your own boss is one of the best things that can happen to you. However, it is not as glamorous and easy as it sounds. Not every self-employed individual has similar business plans and situation. So, before you follow the lead of a fellow self-employed friend, analyze your own situation. Understanding what you have and what you need is step number one.

Next, create a budget that you think will keep you comfortable in your retirement. Once you have a rough estimate on these figures, look at the different investment tools that you can use. Understand the following IRA plans carefully before making the final decision.

You can download FREE (w/o registration) our budgeting worksheet (excel file) for your desk- or laptop.

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Traditional IRA & Roth IRA

These are the most basic retirement options available for those who are self-employed. Each IRA offers different benefits; hence you should choose the one that suits you.  Traditional IRAs offer tax-deductible contributions. You will get a tax-deferred growth until the funds are withdrawn, generally during retirement. All the required minimum distributions (RMDs) will be subjected to income taxes at the time of withdrawal. With Roth IRA, your funds will grow tax-free and all the qualified withdrawals will be tax-free as well.

Both these plans are easy to set up without taking a lot of time. They can be done with most mutual fund and brokerage firms. However, it is important to remember that the annual contribution limits for both these plans are low, of about $6,000 in 2015. This makes it tricky to save a large amount of money.


The Savings Incentive Match Plan for Employees, abbreviated as SIMPLE IRA is designed for self-employed individuals with small businesses. If you have less than 10 employees earning more than $5,000 but much less than six figures, you can offer this plan as a part of their employment perk. This plan is suitable for businesses and firms with no more than 100 employees.

You can put all the self-employed net earnings in this plan – up to $12,500 in 2015 and 2016 (plus an additional $3,000 if you’re 50 or older) plus either a 2% fixed contribution or a 3% matching contribution. You can make an employee contribution of up to $11,500 pre-tax, or $14,000 if you’re 50 or older. The good news is that there isn’t any percentage of income restrictions. Your contributions will be tax deductible, and your investments will grow tax-deferred until you are ready to make withdrawals in retirement.

SEP IRA plan

The Simplified Employee Pension or SEP plan is a good option to consider if you are a one-man team. If you single-handedly run your business, then SEP IRA is a basic way for you to set aside pre-tax savings. You can contribute as much as 25% of your net earnings from self-employment income up to a maximum of $53,000 for the year 2015 and 2016. However, this does not include contributions for yourself. Keep in mind that a SEP-IRA cannot be a Roth IRA.

It is extremely important to pay all the debts before you even start planning your retirement. IRAs are great financial retirement tools which you shouldn’t overlook. Plan critically so that you can continue being your own boss post retirement too!

Author Bio:
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He regularly writes for blogs at MoneyForLunch, Biggerpocket, SocialMediaToday, NuWireInvestor & his own blog for Self Directed Retirement Plans. If you need help and guidance with traditional or alternative investments, email him at or visit

Image credit: IRA by Simon Cunningham


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