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Retirement Plans for the Self-Employed: 4 Options

   |   MBO Partners   |   July 27, 2018

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Self-employed professionals enjoy the flexibility, control, and creativity an independent career offers, but the challenge and uncertainty of planning for retirement is a common concern. At a traditional job, you have the benefit of built-in retirement options, but this field can be more difficult to navigate on your own.

Fortunately, there are a number of solutions available. The right one for you will depend on a number of factors including your personal goals and income level, which you can discuss with a financial advisor.

Choosing Your Best Option

The decision on which plan you choose ultimately depends on whether you are able to contribute 25% or more of your income to retirement savings.

If the answer is no, you have two options for offering employees a retirement savings option:

Simple IRA:

This is ideal for small businesses with less than 100 employees and has several advantages:

  • Easy to create and maintain
  • Minimal fees
  • Tax deductible contributions
  • Customizable employee contributions
  • Tax-deferred growth

SEP IRA:

This is great for independent professionals with few or no employees looking to contribute up to 25% of their income to retirement. Advantages are:

  • Easy to create and maintain
  • Minimal fees
  • Customizable employee contributions
  • Tax-deferred growth

If you can contribute 25% or more of your income to retirement savings, your best options are a Solo 401(k) or a Defined Benefit Plan.

Solo 401(K):

This is ideal for independent professionals with no employees looking for a flexible way to save a lot for retirement. Advantages are:

  • High contributions limits
  • Customizable employee contributions
  • Tax-deferred growth

Defined Benefit Plan:

This is a great option for independents with high, stable incomes and few or no employees, looking to save a lot for retirement. Advantages are:

  • Very high contributions lmits
  • Tax deductible contributions
  • Financial risk mitigation
  • Tax-deferred growth

Here is a summary of the retirement options available to self employed professionals. Answer the questions in the infographic below to discover which one is best for you.

 

Retirement options for self employed


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