How the Self-Employed Should Plan Their Retirement?


As you do not possess a good 401k to opt for if you are self-employed, it implies that you should be looking for alternative retirement planning opportunities. There exists certain prime options to take into account, and if you are keen on particular retirement planning tips it would be best to take the guidance of a tax advisor. Then you would be getting professional advice while determining what is correct for your particular situation. But before you do that, go through this overview of the available retirement planning options that you can avail as a self-employed individual.


The SEP IRA is by far the most popular choice which a number of self-employed individuals prefer while saving for retirement. The SEP enables you to make a contribution of up to 25% of the net earnings. It is a very good option if you own a two person or a one person business.

The mode of operation of a SEP is very much like the conventional IRA in that the contributions that are made are subject to tax deduction in the year of contribution. The advantage of SEPs lies in the amount that can be contributed and the flexibility that exists. However, the downside is that in case you incorporate more employees in future, the law requires you to make the same contribution with respect to each of your non-contract workers.

Solo 401k

The Solo 401k is yet another great retirement planning option that you may consider if you are self-employed. Contributions up to $17,500 can be made for 2014 in addition to another $5,500 for those equal to or over 50 years of age. You are also allowed to make an additional contribution of 25% of the net earnings.

The prime advantage of the Solo 401k lies in the fact that you can make a contribution of even more than the SEP. Moreover, you would be capable of taking out a loan on the same if required. The downsides are that numerous online brokerages charge a certain kind of set-up fee somewhere around $100 to $250 per annum, and contributions can only be made by you and your spouse.


The SIMPLE IRA is the final major retirement alternative for self-employed individuals. This retirement option is particularly applicable for businesses that consist of a couple of employees. Contributions up to $12,000 can be made for 2014 in addition to another $2,500 for those equal to or over 50 years of age.

The advantage of opting for the SIMPLE is that it is considerably easy to set up and is also very flexible. The major downside is that accounts should be opened before 1st of October every year. Moreover, the contribution limit is lower than that of the Solo 401k and SEP IRA.

Hence, you can see that there exist a number of options to go for when you are self-employed and want to save for retirement. There are also other alternatives out there, but these happen to be the most common saving vehicles for the self-employed.

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