Read on to learn about the advantages of self-employed retirement plans.
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updated September 1, 2023 · 3min read
Unlike many employees, self-employed individuals do not have access to an employer-sponsored retirement plan. Understanding your options will help you save enough to retire comfortably.
The self-employed have several retirement plan options, many of which allow a self-employed retirement deduction.
Options available to the self-employed include:
Many people have experience with traditional IRAs, but they have lower contribution limits than other options. However, if this doesn't matter—or you don't have time to set up something more complex before the contribution deadline—consider a traditional IRA contribution.
Despite the low contribution limit, Roth IRAs allow for tax-free growth—a great option for those with many years before retirement.
SIMPLE IRAs work well for small and medium businesses with employees. If you don't have employees, other options likely make more sense.
Businesses with few employees often opt for SEP IRAs but remember you must contribute the same percentage of pay for all employees.
Solo 401(k)s and SEP IRAs both offer high contribution limits for self-employed individuals with no employees. Solo 401(k)s offer a Roth option, while SEP IRAs require less paperwork.
The self-employed retirement deduction goes on line 16 of Schedule 1, Additional Income and Adjustments to Income of Form 1040 for SEP IRAs, SIMPLE IRAs, and solo 401(k)s. Traditional IRAs use line 20 of the same schedule. Roth IRAs do not create a deduction.
by Stephen Sylvester
Stephen Sylvester, CPA helps CPA and finance firms turn expertise into new clients. By transforming esoteric technica...
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