Retirement Plan Options for the Home Business Owner

When you are self-employed, you don’t have “the man” to help you with your retirement account contributions. You’re on your own.

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 save (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 that I can’t contribute to a retirement plan, though? 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.

Your Retirement Plan Options as a Self-Employed Business Owner

You might be surprised at the options available for the self-employed business owner. You have a variety of 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. Here are some of the available options for self-employed retirement planning:

  • Traditional IRA: If you are looking for tax-deductible contributions, the Traditional IRA can be a good choice. Your money grows tax-deferred, and you only have to pay taxes when you begin withdrawing the money. You can save up for the future with this account, and as long as you have earned income, you can contribute. (It is also worth noting that a spousal IRA can be a good option to improve your spouse’s savings.)
  • Roth IRA: If you meet the eligibility requirements, you can contribute to a Roth IRA. 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. If you think that taxes will go up, this can be a great option. I only wish that I could contribute more money each year to my Roth IRA.
  • 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.
  • Keogh: Self-employed individuals can use this type of deferred pension plan to boost their ability to save for retirement. Make sure you meet requirements, and be aware of some of the costs associated with a Keogh plan.
  • 401(k): 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. Choosing one can provide you with the means to save for your future. Just because you’re self-employed is no reason to neglect your retirement planning.

Image source: Scott Willis via Flickr

3 thoughts on “Retirement Plan Options for the Home Business Owner”

  1. Well Heeled Blog

    I have some freelance income, and I orignally wanted to set up a SIMPLE IRA. Then I learned that SIMPLE IRA is anything BUT simple. Oops. The easiest thing was for me to just contribute to a SEP IRA. So I put the max I can into the SEP IRA, and that way I know no matter what I do, I have saved at least 20% of my side earnings.

    1. Miranda Marquit

      Good plan! Yeah, I’m not a huge fan of the SIMPLE IRA. There are other avenues to pursue — and they allow you to save quite a bit. You don’t have to be limited by the low contribution ability associated with the Roth IRA.

  2. This is a very important topic! Thanks for covering it, Miranda!

    I’ve already started planning for my retirement, and I’m still educating myself about all the options out there.

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