Self-Employed Retirement Plan
What is a Self-Employed Retirement Plan?
Self-employment is on the rise in the United States, with an increasing number of individuals working in contract positions and other jobs that lack the benefits offered by full-time employment. Self-employed workers have to invest in their own insurance and retirement plans. A self-employment retirement plan is a tax-deferred plan that allows self-employed workers to save for retirement. These plans take the form of simple IRA, simple 401k or regular 401k accounts, the same types of plans available to full-time workers.
IRAs are flexible retirement saving accounts. A simple IRA is a good savings plan for self-employed individuals who work by themselves, as well as employers who have up to 100 employees working under them. They are a good plan for individuals who make a moderate income. Those who make more than $50,000 a year are often better served by putting money in other types of accounts.
A simple 401k combines the features of a simple IRA with the features of a 401k plan. The biggest advantage of simple 401k plans is that they don’t require the rigorous administrative testing of a traditional 401k. This makes them a good choice for self-employed small business owners who like what 401k plans have to offer but can’t afford or don’t want to arrange for testing.
A solo or self-employed 401k is specially designed for contract workers or self-employed workers with no employees. This type of account allows for a large maximum contribution so workers who make a high annual income can especially benefit from it. If you have a large amount in this type of account, you may be required to report it on a special tax form.
Saving for retirement is important, and if you are self-employed no one is going to do it for you. Fortunately, there are several options available for self-employed individuals who wish to begin saving.