News & Resources

6 Retirement Plans for the Self-Employed

You may be surprised at how many retirement plan choices are available.

Did you know that self-employed individuals have many of the same options to save for retirement on a tax-deferred basis as employees participating in company plans?

Here is a list of the different retirement plan options and the amount you can save in each (the dollar figures are for 2011 and are subject to annual cost-of-living adjustments):

1. Savings Incentive Match Plan for Employees (SIMPLE IRA Plan)
   • Contribute your net earnings from self-employment up to:
     • $11,500 (plus an additional $2,500 if you're 50 or older) in salary reduction contributions; and
     • Either a fixed contribution of 2% of your net earnings from self-employment, or matching contribution equal to your salary reduction contributions up to 3% of your net earnings from self-employment.
2. Simplified Employee Pension (SEP) Plan
   • Contribute as much as 25% of your net earnings from self-employment (not including contributions for yourself), up to $49,000.
3. One-Participant 401(k) Plan
   • Make salary deferrals up to $16,500 (plus an additional $5,500 if you're 50 or older) of your compensation from the business either on a pre-tax basis or as a designated Roth contribution; and
   • Contribute up to an additional 25% of your net earnings from self-employment (not including contributions for yourself), up to $49,000 including salary deferrals.
4. Profit-sharing Plan
   • You can decide how much to contribute on an annual basis, up to 25% of compensation (not including contributions for yourself) or $49,000.
5. Money Purchase Plan
   • Contribute a fixed percentage of your income every year, up to 25% of compensation (not including contributions for yourself), according to a formula stated in the plan.
6. Defined Benefit Plans
   • Contributions are calculated by an actuary based on the benefit you set and other factors (your age, expected returns on plan investments, etc.); the maximum annual benefit can be up to $195,000.

In general, you can save more for your retirement in a plan than in an individual retirement arrangement.

Please contact our tax professionals at 877.517.6872 to discuss any of these options and how they may fit into your financial plans.

Resources:

1. Types of Plans - for information on how to establish and operate different types of retirement plans.
2. Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) - explains rules for retirement plans for small business owners, including self-employed individuals.
3. IRA Resources - for information on IRAs including annual contribution and deduction limits.
4. Publication 590, Individual Retirement Arrangements (IRAs) - explains different types of IRAs, tax on distributions and more.