Different Ways You Can Save for Retirement if You are Self Employed

Different Ways You Can Save for Retirement if You are Self Employed
  • Opening Intro -

    Being self-employed gives you a certain degree of freedom but it shouldn’t give you a reason not to save for retirement.

    Since you don’t have the benefit of an employer helping you save for retirement, you need to do most of the legwork yourself.


This article focuses on different ways you can save for your retirement if you are self-employed.

Start Saving ASAP

Don’t get stuck in the idea that you can only start saving when you make enough money. Start small and increase your contributions once your earnings increase.

Research all the retirement options you have and weigh their pros and cons. Fine-tune your retirement portfolio based on your risk profile and time horizon. Start saving as soon you can – the earlier, the better.

Four Financing Options to Boost Financial Health for Retirement:

  • Traditional IRA

    Individual Retirement Accounts (IRAs) is similar to 401(k)provided by an employer. The only difference is that you have to open this account by yourself, as an individual.

    Traditional IRAs allow you to make pre-tax contributions. This reduces your tax burden in the year you contribute, which makes it easier to afford those contributions.

    All the earnings grow tax-deferred, however, you have to pay income tax on funds that you will withdraw later. It will be taxed at whatever the tax rate happens to be when you withdraw a distribution. 

    You can contribute to traditional IRA if you believe you are in a high tax bracket now and think you can take income at lower rates in retirement.

    You will have to start withdrawing money when you retire or reach 70½ years of age — whichever happens later.

  • Roth IRA

    Roth IRAs allows you to prepay your taxes. Unlike traditional IRAs which defers tax until withdrawal, a Roth IRA requires you to pay taxes upfront before you make a contribution.

    The benefit of Roth IRA is that you won’t owe anything in taxes on withdrawals after your retirement. You can opt for Roth IRA if you feel taxes would be higher when you retire or you don’t wish to budget for taxes after retirement.

    You can make withdrawals at any time without any penalty or taxes due. You will be taxed only when you contribute.

Traditional or Roth IRA Contribution Limit: Up to $6,000 in 2019 for those under the age of 50, plus a $1,000 catch-up contribution for those who are over 50 or older.

SOLO 401(k)

A Solo 401(k) is simply a 401(k) plan that is operated and used by a single person. Solo 401(k) plans are available to small business owners, self-employed individuals and those who employ immediate family members.

High Contribution Limit: You can contribute up to $18,500 of your income, which can go in as pre-tax or after-tax savings, or a combination of both. You can also make profit-sharing contributions of up to 25 percent of compensation.

When you combine your salary-deferral and profit-sharing contributions, you can contribute up to $55,000 total in 2018 and an additional catch-up contribution of $6,000 for those over the age of 50.

You can create a Roth 401(k) plan if you want to contribute to Roth IRA but can’t because you exceed the income limitations. With 401(k) and Roth 401(k) plans, there is no income limitation for participants.

You will need to start taking required minimum distributions from the traditional or Roth 401(k) when you reach a certain age.


If you are looking at options for the business’s retirement plan, consider Simplified Employee Pension (SEP-IRA) and Savings Incentive Match Plan for Employees (SIMPLE IRA).

SEP-IRAs are profit sharing plans that use IRA accounts for funding. You can contribute up to 25 percent of compensation, and contributions you make to your staff may be tax-deductible business expenses.

You can contribute $55,000 or up to roughly 20 percent of the business’s profits – whichever is less.

A SIMPLE IRA plan allows you to make pre-tax contributions without meeting the requirements of a 401(k) plan.

It allows you to make both an employee contribution of up to $12,500 or $15,500 if you are above 50 years, and an employer contribution whose size is a percent of your business profit.

Hire an Advisor

Hire a financial advisor. He can walk you through the pros and cons of different account structures like self-directed IRA services and investment options.

You can also consider opening an account with a robo-advisor. They use sophisticated software to match savers with low-cost portfolios that align with their savings needs, time horizons and risk tolerance.

other valuable tips:

They charge about 0.25% in annual fees, or $25 on a $10,000 investment, while traditional advisors charge 1% in fees.

As a self-employed individual, only you would be responsible for saving for retirement. Thanks to numerous financing options, you can choose the ones best suited for you. You can retire on your own terms and build a secure future for yourself.

Author Bio:
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning. Over the last 10 years has turned his focus to self-directed accounts and alternative investments. Rick regularly posts helpful tips and articles on his blog at SD Retirement. You can also find his writing on Business.com, SAP, MoneyForLunch, Biggerpocket, SocialMediaToday, and NuWireInvestor. If you need help and guidance with traditional or alternative investments, email him at rick@sdretirementplans.com.

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