How to Save for Retirement if You’re Self-Employed

The dream of self-employment life is making money for yourself without having to answer to a boss or follow someone else’s schedule. It sounds fantastic, and it can be in many ways.

However, self-employment comes with the responsibility of initiating a plan for retirement. A human resources representative does not stop by to present employer-sponsored retirement plans. They are not available to you. There is no employer pledging to match a specific percentage of your contributions. That doesn’t mean that you get to forget about retirement altogether.

Sift through the many retirement savings plans available to you that are just as beneficial as some employer-sponsored plans. By gaining familiarity with how to invest for retirement, you will realize you do not need an employer to hold your hand through the process. You are self-made and fully capable of planning for your own retirement.

Empower yourself as we discuss different options for contributing to retirement and achieving your long-term financial goals. It’s easy to start saving for retirement if you are self-employed.

Consider a Solo 401(k) Plan

Maximize contributions by signing up for a Solo 401(k) plan. This plan is like an employer-sponsored retirement plan where you can donate as the employer and the employee. This will raise the contribution limits and allow you to maximize your investment benefits as a self-employed individual.

The money you put into a Solo 401(k) plan is tax-deductible. As the money inside the investment account grows, you will not have to pay money on those taxes. It is a great way to experience tax savings and multiply your money for retirement through investing.

Explore a Simplified Employee Pension (SEP) Plan

For small business owners and self-employed individuals, you can look into a Simplified Employee Pension Plan. All your contributions get to grow tax-free until retirement.

Contribution limits do exist, tapping out at $58,000 per year or 25% of your compensation, whichever is lower. This retirement plan is made with business owners in mind, knowing that everyone deserves a chance to save for retirement and enjoy tax-free retirement accounts.

Consider a Simple IRA Plan

Small business owners can take advantage of a Simple IRA plan as an excellent option for tax savings in retirement accounts. Similarly, self-employed individuals can contribute up to $13,500 per year and enjoy tax savings. For individuals over age 50, you can contribute $16,500.

You do have access to the funds before age 59 ½, but you will be subject to a 10% fee. The purpose of this savings plan is to keep the money in the fund until the time of retirement and enjoy tax-free financial growth of the account along the way.

Consider a Traditional or Roth IRA

Traditional or Roth IRAs are popular for hard-working Americans, including self-employed individuals. Contribute to a traditional IRA and find the money to be tax-deductible, and as the account grows, the increase is tax-free.

Roth IRA contributions are a little bit different as the contributions are not tax-deductible. Do not dismay – there are some advantages. The account grows tax-free, and when it is time to withdraw, the funds are tax-free.

IRAs are used by those who participate in employer-sponsored retirement plans for supplemental retirement savings. IRAs are a great way to practice discipline and keep your money safe and tax-free until you need it.

Regularly Monitor and Adjust Your Retirement Savings Plan

Rule number one for any long-term investment – you should continuously monitor the success of the retirement fund. If the investments are not performing well, make some adjustments.

Diversify your portfolio to make room for failure in some areas, and your investment will thrive in other areas. Set metrics to see if you are meeting milestones along the way to stay on track with your long-term financial goals for retirement.

Tracking your progress and making adjustments annually will help you maximize the retirement savings that are available to you.

Conclusion

Prioritize retirement savings to find they are just as important or even more important when you are self-employed. You may imagine that you will have so much money once retirement rolls around that you do not need to make plans in advance.

Be careful. Life happens, and that is not always the case. Find comfort and security in knowing that you planned ahead by looking into retirement plans for self-employed individuals.

Compare and contrast the pros and cons of Solo 401(k) plans, SEP plans, Simple IRAs, and traditional or Roth IRAs to decide on the best retirement account for self-employed individuals. When you decide on a plan, be sure to monitor your progress regularly and make adjustments as needed.

Take charge of your retirement savings as a self-employed individual. Start now with a financial advisor to set up a successful retirement fund.