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Self-Employed? Here Are Your Retirement Options.

Jul 26, 2022 1:29:33 PM

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Perhaps one of the scariest things about being your own boss is the lack of a safety net. You’ve got lots of freedom, but that all means you’ve got to secure your own retirement! That might sound daunting, but entrepreneurs have plenty of options at their fingertips.

Even if there’s no company retirement account to take advantage of, the ability to create a solid financial future is in your hands!

Here’s the rundown:

Simplified Employee Pension (SEP)

Also known as SEP-IRAs, these plans have largely replaced Keogh plans (now called qualified plans). This structure has high contribution limits, but remember: business owners must make contributions for all eligible employees at the same fixed percentage. Still, if you have just a handful of employees or are in the business alone, contributing up to 25% of your net self-employment earnings (your net profit minus your SEP contribution and half of your self-employment taxes) can be enormously helpful.

A ”prototype SEP plan,” approved by the IRS, is offered by many financial institutions and plan administration companies. You can also complete form 5205-SEP from the IRS.

These accounts are much like a traditional IRA with tax-deductible contributions that grow tax-deferred until retirement. They’re best utilized by the self-employed or those with few or no employees of their own.

One-Participant 401(k)

Also known as a Solo 401(k), this plan functions very similarly to your traditional employee-sponsored 401(k). Unlike the SEP-IRA, you can’t use a solo 401(k) if you have any full-time employees (though you may include your spouse). The contribution limit is up to $61,000 in 2022 with the potential for an additional $6,500 catch-up for the 50-and-up crowd.

You’ll encounter different tax rules based on whether you employ a Traditional 401(k) or Roth 401(k) structure. The former includes pre-tax (tax-deferred) contributions with distributions taxed as income and the latter with contributions made after-tax with tax-free distributions. There’s flexibility then depending on your financial status and goals: higher income now than in retirement would benefit from a traditional structure where Roth is the way to go if you anticipate being a high-earner post-retirement.

All you need to open one of these accounts is an employer identification number (EIN) and the right broker to set it up.


You can qualify for a SIMPLE IRA if you’re self-employed or running a business with up to 100 employees. While in a SEP IRA the owner bears the full burden of employee contributions, a SIMPLE IRA allows employees to contribute via salary deferral. Still, you may be required to match contributions of up to 3% of employee compensation or a 2% fixed contribution.

Be warned, the “simple” in SIMPLE IRA might be deceiving. There’s more initial set-up paperwork involved than in a run-of-the-mill IRA.

The contribution limits are also lower: up to $14,000 of your net earnings from self-employment for 2022.

Traditional or Roth IRAs

Now, you don’t have to be self-employed to use either a Traditional or Roth IRA, but they can be enormously beneficial to entrepreneurs and business owners. Again, the main difference between a Traditional IRA and a Roth IRA is the tax: tax-deductible for Traditional IRAs (with it taxed as income when accessed) and after-tax for a Roth IRA (growing tax-free).

Woman sitting at deskThese accounts pretty much run themselves – there’s not much you’ll have to do once it is set up. That said, the contribution limits are on the lower side at $6,000 annually as of 2022. If you’re 50 or older, you can bump it up to $7,000.


A self-directed IRA differs from other types of IRAs in a significant way. There’s not much wiggle room in what you invest in Traditional and Roth IRAs, but SDIRAs make good on the “self-directed” aspect. Your investment options are expanded to include things like real estate and other assets. Even though your SDIRA account is managed by an intermediary/custodian, you can choose (for the most part) what to invest in.

This is ideal if you’re self-employed and looking for more active investments with increased owner agency.

Passive Investing

We mention passive investing ideally as working in tandem with one of the retirement accounts mentioned above. These tend to grow more slowly than investments may, or the limitations of access to your funds can be a hassle – imposing penalties if accessed too soon – so having passive income that isn’t tied up is enormously helpful.

Investing in real estate, for example, generates equity (and net worth) while also generating monthly cash flow. These become inflation-resistant assets where savings and retirement accounts are hit harder by economic ups and downs.


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