Self-Employed? No Retirement Plan Yet?

June 20, 2017




Self-employed professional services firms have a couple of disadvantages when it comes to retirement planning: No employer matching funds and no advice from a company plan administrator. You’re on your own.
But you’re not without choices. You already know you can walk into a bank and open a Traditional and/or Roth IRA. You can’t contribute more than $5,500 annually ($6,500 if you’re age 50 or older) for all IRAs combined, though.


The IRS has other options for self-employed individuals.
Simplified Employee Pension (SEP)
SEPs are fairy easy to establish and administer, and they don’t have the operational costs you’d find in a more traditional retirement plan. For 2017, you’ll be able to contribute up to 25 percent of your self-employment earnings, up to $54,000.


One-Participant 401(k) Plan
These are sometimes referred to as Solo 401(k)s. They’re intended for company owners who either don’t have employees or who want to include a spouse in the plan. You’re required to adhere to the same rules that bind traditional 401(k)s.


You’ll play two roles in this type of plan, one as employer and the other as employee. There are two types of contributions, elective deferrals and employer nonelective. They aren’t assigned blanket contribution limits. Rather, you’ll have to calculate these yourself using some complex formulas.


Saving Incentive Match Plan for Employees (SIMPLE) IRA Plan
Simple IRAs are designed for companies with 100 employees or fewer; they’re appropriate for the self-employed, too. The rules are complicated. Contributions are considered “salary reduction” contributions; you can defer up to $12,500 in 2017 for yourself (up to $3,000 more if you’re 50 or older).


There are two options for your employer contributions to a SIMPLE IRA. You can either put in a 2 percent fixed contribution or a 3 percent matching contribution.


Tax Issues
These are simple explanations for what can be a complicated process, involving:
  • Choosing and setting up your own retirement plans,
  • Ensuring that your contributions don’t go over the top, and,
  • Knowing when you can start to withdraw funds.
Once you’ve determined all of that, you still have to learn how and where to record your retirement savings correctly on your income tax returns. Contact us
if you would like us to help your professional services firm choose your retirement vehicle(s) wisely.


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