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Retirement Plan Options for the Self-Employed

Whether you’re a freelancer or an entrepreneur, being your own boss has many perks. You can set your own schedule, prioritize the projects that mean the most to you, and you have the leverage to make key decisions that can alter the course of your career. When you’re self-employed, however, you don’t have the built-in HR benefits that come with being an employee of a company — instead, you need to manage things like retirement savings for yourself.

Luckily, there are plenty of options when it comes to planning for retirement if you’re self-employed. Below we explore six types of accounts you can open to start saving for the future.

1. Traditional and Roth IRAs

A traditional or Roth IRA is a common choice and may be suitable for individuals who are saving less than or up to $6,000 a year. And individual retirement account (IRA) allows individuals to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred (no capital gains or dividend income is taxed). Individual taxpayers are allowed to contribute 100% of compensation up to a specific maximum dollar amount to their Traditional IRA. Contributions to the Traditional IRA may be tax-deferred depending on the taxpayer's income, tax filing status and other factors. Taxes must be paid upon withdrawal of any deducted contributions plus earnings and on the earnings from your non-deducted contributions. Prior to age 59 1/2, distributions may be taken for certain reasons without incurring a 10 percent penalty on earnings. None of the information in this document should be considered tax or legal advice. Please consults with your legal or tax advisor for more information concerning you individual situation.

Contributions to a Roth IRA are not tax deductible and there is no mandatory distribution age. All earnings and principle are tax free if rules and regulations are followed. Eligibility for a Roth account depends on income. Principle contributions can be withdrawn any time without penalty (subject to some minimal conditions). 


A Simplified Employee Pension (SEP) IRA works for those who are self-employed with few or no employees. The contributions for this in 2020 is up to 25 percent of compensation, or $57,000. There is a $285,000 limit on compensation for 2020 ($280,000 for 2019). Employers must contribute an equal percentage of salary for each employee, and you will also be counted as an employee.2

3. Solo 401(k)

The solo, or one-participant 401(k) plan is a traditional 401(k) that is for self-employed individuals who do not have employees. You can contribute up to $57,000 for 2020, and if you’re over 50, you have an additional $6,500 you can add as a “catch-up” contribution.3 There are a number of variables that can assist with your contributions, including the special rule for single-member LLCs and sole proprietors: You can contribute 25 percent of net self-employment income. Contributions are made pre-tax and any distributions after age 59½ are taxed.

4. Defined Benefit Plan

This plan is a fitting choice for self-employed individuals who are looking to put away more each year than your typical allowed contributions. For 2020, the maximum contribution is $230,000.4 The contribution will be based on how much you will be receiving once you retire, your age and the expected return on your investments. Contributions are tax-deductible in most cases, and the distributions during retirement will be taxed as income.

5. Simple IRA

The Simple IRA (Savings Incentive Match Plan for Employees) is ideal for business owners who have 100 or fewer employees. For 2020, you can contribute up to $13,500, with a catch-up contribution of $3,000 if you are over the age of 50. If contributing to another plan, your contributions cannot exceed $19,500. The contributions are deductible, but any distributions during retirement are taxed. Any contributions you make to an employee account is also deductible as a business expense.5

6. Self-Directed IRA

A self-directed IRA (SDIRA) maintains the same eligibility and contribution limits as a traditional IRA. However, an SDIRA enables account holders to invest in alternative assets, such as precious metals, cryptocurrency and real estate. With a self-directed IRA, you are the primary manager of your account, so you choose exactly where to allocate funds. However, with many unique investments available it’s essential that holders understand the regulations, knowledge and time commitment involved in their investments.

Being self-employed certainly has its perks, but it also oftentimes means making big decisions for your future on your own. Before deciding which self-employed retirement plan option to commit to step back and ask yourself what will work best for your unique situation, ideal future and risk tolerance.

  1. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
  2. https://www.irs.gov/retirement-plans/operating-a-sep
  3. https://www.irs.gov/retirement-plans/one-participant-401k-plans
  4. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-defined-benefit-plan-benefit-limits
  5. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-simple-ira-contribution-limits

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Advisory services offered through Capital Analysts or Lincoln Investment, Registered Investment Advisers. Securities offered through Lincoln Investment, Broker Dealer, Member FINRA/SIPC.