Self-Employed Retirement Plan Options

When you are self-employed, there are many different retirement plans that you could potentially choose from. All of the retirement plans that you have available to you have some unique features that make them attractive. Here are a few of the retirement plan options that you have as a self-employed individual.


The SEP IRA is one of the most popular retirement plan options for the self-employed. With this type of retirement plan, you can put away a large amount of retirement money on an annual basis. If you are an employee of your own corporation, you can put in as much as 25 percent of your annual compensation. If you are self-employed and do not have a corporation structure, you will be able to put away as much as 20 percent of your compensation for the year. Regardless of the percentages, you cannot exceed $49,000 per year. Having the ability to put away as much as $49,000 per year can give you a great head start on saving for your retirement. With this retirement plan, all of your contributions are going to be tax-deductible. The money that you invest is allowed to grow tax-free until you start to withdraw it at the age of 59 1/2. Another good thing about this plan is that you have the flexibility to change your contribution percentage every year. If you have a bad year, you can lower the amount that you are going to contribute.

Solo 401(k)

Another popular option is the Solo 401(k). This retirement plan is popular because it allows you to put away a bigger percentage of your income. Although the absolute dollar cap on this type of investment is also $49,000, some people can put away more money with this type of plan than they could with the SEP IRA. With the Solo 401(k), you can contribute $16,500 of your salary. Then on top of that, you can contribute up to 25 percent of your annual salary as the "employer match." For example, let's say that you make $100,000 per year. With the Solo 401(k), you will be able to put away $16,500 and $25,000 for a grand total of $41,500. With the SEP IRA, if you had your business set up as a corporation, you would only be able to contribute $25,000. This plan also allows you to take loans against your retirement funds.

Simple IRA

The SIMPLE IRA is another option. This option has a higher contribution limit than a regular IRA but is less than the SEP IRA or Solo 401(k). Currently, you can contribute as much as $11,500 per year.

Spousal IRA

If you have a spouse and are self-employed, you might want to consider utilizing a spousal IRA. If your spouse is not eligible for a retirement plan through a job, you can fund an IRA for him or her. The annual contribution limit is $5000, but it does give you another way to put away money for you and your spouse for retirement.

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