Saving for Retirement When You're Self-Employed

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Saving for Retirement When You're Self-Employed

Are you self-employed? Being your own boss comes with a variety of perks. However it’s easy to get distracted from your future financial needs. Many times you’re too busy concentrating on the success of the business to remember to save for life down the road.

Many people choose to be self-employed for the freedom and the potential to make unlimited income, but as the boss, maybe you put too much trust in the idea that you’ll eventually make it big and become incredibly wealthy. In which case, you forget about saving for retirement now. However, it’s always a smart move to have an alternative plan in place.

Save more from your paychecks

This may sound like the obvious, but saving 40% of your pay (rather than the standard 30% of self-employed individuals) will give you the financial freedom you need when it comes to enjoying your golden years. With that extra 10% you can create a savings fund for retirement and other financial goals.

If saving 40% of your income simply isn’t a financially viable option for you, depending on how much you earn and how much you plan to contribute to your retirement each year, you may have several great retirement options to choose from:

Solo 401(k)

Solo 401(k) plans are worth considering, due to their relatively high contribution limits, flexible investments and the ability to make after-tax Roth contributions. Those who contribute to a solo 401(k) can make an annual salary deferral of up to $18,500 in 2018. Or $24,500 in 2018 if age 50 or over. In addition to those amounts, you can contribute up to 25 percent of your net earnings from self-employment up to a total contribution of $55,000 for the year.

The biggest downside with this type of plan is that you can’t use it if you have employees other than your spouse. Further, you’ll have to fill out quite a bit of paperwork to open a Solo 401(k), more so than if you had chosen a SEP IRA instead.


Contributing to a SEP IRA will decrease your tax burden, and your money will grow tax-deferred until retirement. Workers can contribute up to 25 percent of their compensation or $55,000 in 2018, whichever is less. Furthermore, the SEP IRA is also more widely available, so your preferred online broker may offer it, and not the self-employed 401(k). If that’s your situation, the SEP IRA is an excellent choice.

IRA and Roth IRA

With traditional IRAs, contributions are generally tax deductible and not subject to income tax until withdrawn. On the contrary, the Roth IRA allows you to put money in post-tax, making withdrawals in retirement tax free. This individual retirement arrangement offers several powerful tax benefits that make it a no-brainer for many retirement savers. To start, you can contribute up to $5,500 per year in 2018 to a Roth — plus an extra $1,000 if you’re 50 or older.

Getting the Help You Need

When you’re the boss, it sometimes feels intimidating to tackle the process of retirement saving by yourself. Ultimately, you will need to do some research on your current/potential income as an entrepreneur, and then talk to one of our a retirement income advisors about which retirement savings option will allow you to save the most.

The experts at CKS Summit Group offer options to help you set up the retirement plan that best fits your situation. Click here to set up your complimentary strategy session, or give us a call today on 586-286-5820.