There is are joys that comes with being Self-Employed but you are also solely responsible for any burden it may bring. The biggest burden is saving for retirement. As the boss you are responsible for starting a retirement plan that will give you a quality life post-retirement. The earlier you start the better.

As business owners, not only are we reasonable for covering the expenses but most importantly bringing in steady income is a must. Saving for retirement is often neglected but should be made a priority today.

I know the question you are asking- Where do I start? What are my options? What can I contribute?

Before we dive in, let me explain the different retirement options available:

Self-Employed Retirement Savings Plans

There are four retirement savings options available. They are:

• One-Participant 401(k)
• SEP IRA
• Simple IRA

With all three options, your contributions are tax-deductible, and you won’t pay taxes as they grow.

How much can I contribute?

One-Participant 401 (k)

• Make annual salary deferrals up to $19,500 in 2020 ($19,000 in 2019), plus an additional $6,500 in 2020 ($6,000 in 2015 – 2019) if you’re 50 or older either on a pre-tax basis or as designated Roth contributions.
• Contribute up to an additional 25% of your net earnings from self-employment for total contributions of $57,000 (for 2020 and $56,000 for 2019), including salary deferrals.

SEP IRA

• Contribute as much as 25% of your net earnings from self-employment (not including contributions for yourself), up to $57,000 (for 2020 and $56,000 for 2019).

Simple IRA

• You can put all your net earnings from self-employment in the plan: up to $13,500 in 2020 ($13,000 in 2019), plus an additional $3,000 if you’re 50 or older (in 2015 – 2020), plus either a 2% fixed contribution or a 3% matching contribution.

How Do I start my Retirement Plan?

One-Participant 401 (k)

There is no difference between this plan and a traditional 401 (k) plan. You will simply start your plan with any financial institution of your liking. Popular financial institutions are: ADP, American Funds, Charles Schwab to name a few.

SEP IRA

• complete Form 5305-SEP, Simplified Employee Pension – Individual Retirement Accounts Contribution Agreement (PDF), or
  an IRS-approved “prototype SEP plan” offered by many mutual funds, banks and other financial institutions, and by plan administration companies; and
• open a SEP-IRA through a bank or other financial institution.

Simple IRA

• Complete
  Form 5305-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) – for Use With a Designated Financial Institution (PDF),
  Form 5304-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) – Not for Use With a Designated Financial Institution (PDF), or
  an IRS-approved “prototype SIMPLE IRA plan” offered by many mutual funds, banks and other financial institutions, and by plan administration companies; and
• OpenA SIMPLE IRA through a bank or another financial institution. Set up a SIMPLE IRA plan at any time January 1 through October 1. If you became self-employed after October 1, you can set up a SIMPLE IRA plan for the year as soon as administratively feasible after your business starts.

Takeaway

Saving for retirement is often neglected by most self-employed individuals but it should be top priority. Explore the three options provided and decide what works best for you. Start Saving Today!