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Best Retirement Plan Options For The Self-Employed

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You can have a secure retirement even as a self-employed with the right retirement plan

Being self-employed offers numerous advantages. While you can be your own boss and enjoy the flexibility and agency that comes with it, there are some things that aren’t as readily available. Employer-sponsored healthcare and 401(k) matching programs are examples of this.

This lack of formal perks has the potential to make it more difficult for entrepreneurs to save for retirement. Those who prefer to work for themselves still have a number of great retirement savings possibilities. A financial advisor can also assist you in selecting the best retirement plan for your position and goals.

Overview of the Best Self-Employed Retirement Plans

Saving for retirement as a self-employed person can be more difficult for a variety of reasons. Individuals who work for themselves do not often have consistent sources of income like those who work for others. Healthcare and education costs can also add up when you are not covered by a regular workplace. Furthermore, the costs of running a business can reduce your take-home pay. 

Saving for retirement can easily become an afterthought when there is no HR representative to get you active in employer retirement plans, no matching programs, and no automated payments.

Being self-employed is growing more common in the United States and around the world. A large proportion of self-employed people do not save for retirement on a regular basis. While they may not have the same retirement savings options as the ordinary employee, there are still lots of plans available to them. Solo 401(k)s, SIMPLE IRAs, SEP IRAs, and Keogh plans are examples of such programs.

Solo 401(k)s

A solo 401(k) is one of the most popular retirement plans for self-employed individuals. The IRS refers to these as one-participant 401(k)s.

The popularity of these accounts is due in part to the fact that they closely resemble the types of 401(k) plans offered by employers, which many people are familiar with. 

A solo 401(k) is only available to sole proprietors with no other employees. The solo proprietor has an exception to this regulation if he or she has a spouse who also works in the business.

One of the most significant advantages of a solo 401(k) plan is that you can contribute as both the employer and the employee, virtually doubling your contribution amount each year. As with a 401(k), total contributions for 2021 cannot exceed $19,500. Catch-up contributions of $6,500 are also available for people aged 50 and up. The pre-tax advantages are also identical to those of a traditional, employer-sponsored 401(k).


While a 401(k) includes both employer and employee contributions, Simplified Employee Pension Plan (SEP) IRAs solely include company savings. A SEP IRA is simple to set up and operate, and you can contribute up to 25% of your salary, and up to $58,000 in 2021.

A SEP IRA does not have an annual funding requirement. You can also opt to make regular contributions throughout the year or to make a lump-sum deposit at any time during the year.

While the plan is best suited for lone proprietors, a SEP IRA can also be used as an employer of several employees. However, in such a situation, you must contribute to all qualified employees based on their first $290,000 in annual compensation.


A SIMPLE (Savings Incentive Match Plan for Employees) IRA, which also comes under the IRA umbrella, operates differently than a 401(k). However, because it contains matching contributions, it can be looked at as a hybrid of an IRA and a 401(k). A SIMPLE IRA can be used by a sole proprietor, but it works much better for small enterprises.

When it comes to rollovers, distributions, investments, and other features, a SIMPLE IRA follows the same rules as a SEP IRA. Contribution thresholds, on the other hand, are lower. They’re $13,500 in 2021, with a $3,000 extra allowed if you’re 50 or older. 

As an employer, you must match up to 3% of each employee’s contributions or 2% of each employee’s pay, for both contributors and non-contributors.

Keogh Plans

When it comes to investing for retirement as a self-employed individual, a Keogh plan (or profit-sharing plan) isn’t as well recognized as its IRA and 401(k) competitors. It is more difficult to set up than the other options, but it has the added benefit of more potential growth. 

If the plan is a defined contribution plan, total contributions to the Keogh plan in 2021 are limited to $58,000. You can save much more if it is structured as a defined benefit plan. For 2021, the defined benefit Keogh plan ceiling is set at $230,000, or 100% of the employee’s compensation.

Contributions to a Keogh plan are made pre-tax, as are contributions to many other retirement plans. However, keep in mind that a Keogh plan is more difficult to set up and needs more paperwork than the typical retirement option.

Should You Use a Self-Employed Retirement Plan?

It’s vital to realize that no two persons are alike when it comes to deciding which retirement plan to choose as a self-employed individual. In other words, you should make your final decision depending on your unique financial situation. However, there are some principles that can assist you in making your decision.

If you’re a sole proprietor looking for a simple way to save for retirement, you should consider a solo 401(k) or SEP IRA. Both of these plans are intended for sole proprietors and are simple to set up and administer while providing significant savings.

If you are self-employed and run a small business, a SIMPLE IRA is definitely an excellent option. You won’t have to complete as much paperwork to set one up as you would with a Keogh plan, and you’ll be able to optimize your employees’ and your own retirement savings.

Suppose you own a small business and want to ensure that you and your employees can contribute significant amounts to retirement each year, a Keogh plan might be the best option. 

Final Thoughts

Saving for retirement while you’re self-employed can be difficult, and statistics show that far too many self-employed people don’t save for retirement at all. 

Whether you’re a sole proprietor or a small business owner with several employees, there are great retirement options available for the self-employed. SEP IRAs, SIMPLE IRAs, solo 401(k)s, and Keogh plans are among the best, but before you make the decision, be sure you understand what makes sense for your financial circumstances.
Contact a financial advisor today to learn more about your retirement opportunities.

About The Author

Tom is the creator of the AIM Framework and Accounting Impact Method. He spends less time on fruitless theoretical methods, and most of his time bringing practical financial, tax, and technology solutions to business owners who want to make an impact on the world.

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