How to Choose a Retirement Plan for the Self-Employed

With many existing businesses laying off employees, people are beginning to see some of the advantages of being self-employed. Saving for retirement remains important whether you are an employee or have your own business. So, if you DO enter the growing ranks of the self-employed, it’s vital you continue saving money in a retirement plan. Here is some information on how to choose a retirement plan for the self-employed.

Difficulty: Moderate

Instructions

1. TRADITIONAL IRA: INDIVIDUAL OR ROTH
   These traditional IRA accounts are particularly useful when your business is starting out and you aren’t making a lot of extra cash to invest in the future yet. You are limited to putting in only a few thousand in any tax year, but there are no extra costs or special paperwork required after your accounts are set up.

2. SEP IRA
   The SEP IRA is considered to be fully funded by the employer (you). The SEP IRA allows you to contribute more than the traditional IRA. It also has low administrative costs that are more than the traditional IRA but less than most other plans.

3. SIMPLE IRA
   I personally found the Simple IRA to be anything BUT ‘simple’. It gives you a chance to cover all eligible employees as well as yourself though there are fairly complicated mathematical computations necessary to make this one work. But you can put away more tax-deductible money in this one than the previous two. It is a good solution for small corporations.

4. SOLO 401K
   The solo 401k is the most recent of the retirement plan additions. It is ideal for an owner and a spouse giving many of the advantages of a 401K and the other self-employed plans rolled into one. If you have a job as an employee and also have earnings as a self-employed freelancer, you can have a solo 401K plan in addition to your regular 401 from your job. The downside is that the administration costs are fairly high for this plan.

5. KEOGH
   This is the most costly retirement plan for the self-employed, but it does allow for the highest contribution amount. If your business is doing very well, it is worth the extra cost to put away more of your money in a Keogh.

6. This is just a cursory look at the choice of plans for business owners. The plan you choose will depend on how much money you want to contribute and if the savings more than off-set any expenses. For more information on how to choose a retirement plan for the self employed, please see the additional Resources listed below.

Resources

• IRS retirement plan information
• More details on retirement plans

[writesource]

on 4/3/2009 Excellent tips!

[sonni57]

on 4/2/2009 Nicely done article on getting a retirement plan for self employed.