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Retirement Plan Options for the Self-Employed

Before we retire, we need to answer the question: How are we going to be supported financially after I stop working? This holds especially true for those of us that are self-employed. The need to have savings and retirement plans has become more apparent in the midst of the current COVID-19 crisis. You have options, and below are a few of those outlined.

1. Traditional and Roth IRAs

A traditional or Roth IRA is a common choice and is suitable for individuals who are saving less than or up to $6,00 a year.1 There are advantages to both – you will have tax deductions on a traditional IRA that you won’t have to worry about after retirement. With a Roth, there is no immediate deduction and withdrawals, after you retire, are tax-free.

2. SEP IRA

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.


Veritas Wealth Management, LLC is a CPA led, comprehensive wealth management firm based in Salt Lake City, Utah. If you have any questions about what you should be doing about your financial future, please come and set an appointment. We'd love to hear from you.

  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.