Retirement Plan Options for Home Business Owners

When you are self-employed, you don't have “the man” to help you with your retirement account contributions. Here's what you need to know about retirement plan options for home business owners.

The last time I had the opportunity to participate in a 401(k) was shortly after finishing my bachelor's degree. I was working full-time. However, I didn't take advantage of retirement savings because I didn't think I had enough money to invest that way (just one of the many money mistakes I have made in my life). Now, of course, I have a home business, and I can't contribute to an employer-sponsored plan run by someone else.

Does that mean I can't contribute to a retirement plan? Happily, it doesn't. There are opportunities for the self-employed to contribute to tax-advantaged retirement accounts. And, unless you have a surefire plan for unearned income later in life, you need to invest in tax-advantaged accounts so that you can build a good nest egg for the future.

Retirement Plan Options for Home Business Owners

You might be surprised at the options available for the self-employed business owner. You have various plans to choose from, all of them coming with tax advantages that can allow you to defer payment until you withdraw or that allow you to pay taxes now and withdraw your earnings tax-free.

It's important to realize that many of these accounts come with requirements and limits. Be sure to review all the requirements and consider consulting a tax professional before moving forward.

Here are a few of the available options for self-employed retirement planning:

Traditional IRA

The Traditional IRA can be a good choice if you are looking for tax-deductible contributions. Your money grows tax-deferred, and you only have to pay taxes when you begin withdrawing the money. With this account, you can save up for the future and contribute as long as you have earned income. (It is also worth noting that a spousal IRA can be a good option to improve your spouse's savings.)

(One of my favorite accounts for a traditional IRA is through M1 Finance.)

Roth IRA

You can contribute to a Roth IRA if you meet the eligibility requirements. I'm going to be honest. The Roth IRA is one of my favorite retirement investing options. You contribute after-tax dollars, but the money grows tax-free. You don't have to pay taxes on the earnings. Ever. This can be a great option if you think taxes will go up. I only wish that I could contribute more money each year to my Roth IRA.

(My first Roth IRA was through Betterment, even though I no longer have an account. My son is saving with his first IRA through Betterment.)

Simplified Employee Pension (SEP)

This is another brand of IRA. You can fund a SEP no matter the size of your company — even if you are a company of one. This can be a way to boost your retirement contributions as a business owner since this type of account comes with higher contribution limits than a traditional or Roth IRA. Additionally, your contributions are tax-deductible.

(My SEP is actually with Acorns. It's been useful for me to set it and forget it while putting in more than I could with a “regular” IRA account.)


Some self-employed business owners choose to open solo 401(k) plans. Additionally, if you have a home business, it's possible to set up a 401(k) for your business and make employee and employer contributions.

Many of these plans also come with the ability to add employees in case you expand your business. Make sure you understand the rules associated with contributions since some plans have certain funding requirements for employees.

Don't Forget About the HSA for Retirement

A Health Savings Account (HSA) can be another good choice to help boost your retirement investments with the help of tax advantages. The HSA comes with benefits like a tax deduction for contributions. Then, your money grows tax-deferred. You can even invest a portion of it. Finally, as long as you use the money for qualified medical expenses, you won't pay taxes when you withdraw the money.

I use my HSA for some of my current healthcare expenses, but much of what I put in is invested. I plan to use the bulk of my HSA to cover medical costs during retirement. It's a great way to have tax-free money available to cover rising healthcare costs. Plus, once you reach age 65, your HSA operates similarly to a traditional IRA. You can withdraw money for non-medical costs without paying a penalty — although you still need to pay taxes on money not used for qualified expenses.

(There are a number of good companies out there that offer HSAs. I use Lively, however, for my HSA. It's easy to connect it to a TD Ameritrade account and invest a portion of your HSA for improved growth over time.)

What about Taxable Investment Account?

Another option is to use a taxable investment account. If you plan to retire early, a taxable investment account can help you access your wealth before you reach age 59 1/2. Remember that tax-advantaged accounts come with various requirements and limits.

If you plan to access some of your money early, adding a taxable investment account can be one way to do so. All of the tax-advantaged investment accounts come with various restrictions, including:

  • Contribution limits
  • Income limits
  • Limits on deductibility
  • Requirements to qualify

With a taxable investment account, you can grow your wealth without all of those restrictions. However, you also miss out on tax advantages. The important thing is to plan appropriately to balance different account needs.

In the past, I contributed to a Roth IRA. I still have that Roth IRA, but I make too much to contribute to it. (I could do a backdoor Roth, but I'm not interested right now.) Today, I contribute to a SEP IRA as part of my business. I also max out my HSA contributions. The rest of my investments go into a taxable account that helps me meet various goals, including travel.

Don't assume you can't create your own benefits package while self-employed. It takes some effort to set it up, but it's possible. And that includes saving for your future self by using a mix of retirement plan options for home business owners.

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