Self-Employed Retirement Plans: Secure Safe Retirement Income

Owning a business is an ideal means of earning a lot of money and becoming financially secured and at the same time, business owners are also encouraged to plan ahead and take advantage of the available self-employed retirement plans that can provide you income, security and flexibility.

Taking advantage of the tax savings provided by retirement plans is practical and hassle free, requiring only a little planning. Proactive retirement planning for the self employed ensures you will be adequately provided for during your golden years.

In securing a retirement plan when owning a business, it is essential to understand the basics of self-employed retirement plans to take full advantage of their benefits. The first thing to consider is to know the three most common plans:

  1. SEP-IRA
  2. SIMPLE Plan
  3. Solo 401k


The first type of retirement plan for the self-employed, is the SEP-IRA, it is the most basic and easiest to create and maintain. SEP-IRA plans, in which SEP stands for Simplified Employee Pension, is basically a traditional IRA account designed for the self-employed.

In addition, the Simplified Employee Pension Plan has higher contribution limitations allowing for more tax savings if you take advantage of the contributions fully.

Since this kind of pension plan for self-employed individuals is very easy to understand and maintain until the retirement age, a lot of people find them beneficial over the long term.

This is because the simplicity of the plan frees up your time to worry about the fund investments and growth of your business.

Aside from being simple, another huge benefit of the Simplified Employee Pension Plan is that the contribution date is extendable. If your business encounters financial difficulties or a crisis at some point in which contribution dates are missed, with the Simplified Employee Pension Plan, contributors will be able to have more time to gather resources and fund the plan.

This flexibility provides incredible opportunity to the small business owner.

As mentioned, there is a contribution limit incorporated with the SEP-IRA. In most cases, the amount of the contribution is 25 percent of the compensation while in some cases, the contribution is 20 percent. Together with these percentages, self-employment tax is also incorporated in the computation of contributions.


Another kind of retirement plan for self-employed individuals is the SIMPLE Plan where the word SIMPLE stands for Savings Incentive Match Plan for Employees. A SIMPLE plan is thought of as a compensation deferral plan, which actually has similarities on the basic concept of the employer-sponsored 401k plan.

Unlike the Simplified Employee Pension Plan, where contribution deadlines are easier to deal with, the SIMPLE Plan is stricter and has higher demands on contribution dates.

On the other hand, a SIMPLE Plan has lower contribution limits as compared to SEP-IRA but the percentage of the business profit is not accounted for in the contribution.

One of the advantages of a SIMPLE Plan to the owner is that it permits the business with a lower net profit to use a larger ratio of that profit for retirement alone. At the same time, a SIMPLE Plan also provides immediate vesting for the benefit of the participants.

Establishing a SIMPLE Plan, as well as a SEP-IRA, requires only a minimal costs, which is why these first two types of retirement plans for self-employed individuals are most commonly used.

Solo 401k Plan

The third type of retirement plan for self-employed individuals is the Solo 401k Plan, which is also referred to the Single-Participant 401k Plan. This kind of plan is created by the Economic Growth and Tax Reconciliation Act and is actually the same with the Traditional 401k plan that is being offered by private companies for their employees.

However, the Solo 401k plan is created for an individual who is self-employed and at the same time, it requires less administrative work compared to the traditional 401k.

To qualify and be eligible for the Solo 401k Plan you must be the business owner and or your spouse. If an individual does not fall under this category, he or she should consider another retirement plan designed for the self-employed.

The overall benefits of taking advantage of the Solo 401k Plan is that it requires minimal administrative work, such as paper work, filing and the like. In addition, this plan is easy to maintain like the Simplified Employee Pension Plan. Another benefit of the Solo 401k Plan is that is entails discretionary contributions and immediate vesting, which is similar to the previously discussed plan.

With all these advantages, a 401k Plan simply maximizes the retirement contributions you are capable of making from a tax perspective.

Learning the different types of self-employed retirement plans is not enough to secure your future. Choosing the right plan to build your future retirement is best determined by analyzing your unique financial profile and requirements. Taking advantage of the right plan to maximize your tax savings can make the difference in the quality of your retirement.

The right decisions can help you retire sooner, with more security, and more income.

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