Make your money goals for retirement a reality

Kreg Bale
Kreg Bale December 1, 2019
Updated 2019/12/01 at 12:31 PM
Retirement Savings For Self Employed

saving for retirement when self employed

I’ve found that saving for retirement when self employed can be hard. This is even harder if you freelance and receive your funds scattered all throughout the month. Retirement savings for self employed statistics point out that most small-business owners don’t have a retirement savings plan.

Nevertheless, you shouldn’t quit saving.

Saving helps you remain comfortable in your older years. You shouldn’t wait for anymore. It’s time to create begin saving money for retirement.

Starting early helps you accumulate more savings gradually over a period of time. There’s also the power of compound interest to enjoy if you start saving sooner.  If you wait too long, your savings won’t grow as much as you want.

When you build a retirement savings plan, you can also earn lots of tax benefits. Therefore setting that saving for a retirement plan is crucial


Naturally, you have bills and loans to pay, so it might be tough placing priority on retirement, but you have to do it.

Even if you can only save very little money at once, you will be amazed at how quickly that money can yield big balances.  Imagine the amazing benefits of a warm financial security blanket after you retire.

Before we talk about the tips that can help you put in place retirement savings for self employed plan , let’s talk about how much saving for retirement you should consider.

Most experts state that you should save at least fifteen percent of your gross earnings into retirement each month.

As a freelancer, you probably don’t have a set monthly paycheck but you can find out the range and figure out the minimum gross earnings you receive monthly. Then you spread out the fifteen percent over your paychecks.

You can even become a millionaire without really trying. Here are a few tips for retirement savings for self employed plan.

Save when you receive money:

Some banks today, can automatically save money for you weekly or daily.

As a freelancer, figure out times when you receive money and automate your saving process.

It’s easier and painless when you don’t even see the money sitting right there in your checking account.

Be realistic about how much you can save

There are lots of people who are so cut up in the saving thing that they set up accounts they can’t manage.

Make sure you factor in those occasional luxuries when setting up the savings account, so you are saving only want you can after spending on living expenses.

Nevertheless, you should never save after spending. But plan ahead and save before you begin spending.

Set goals and stick with them

Retirement savings for self employed plan involves making saving a priority and a habit. Set milestones about the percentage you want to save each time you receive your paycheck and stick with it. Saving money for retirement when self employed can become a lot easier with goals amd milestones.

Although you have an ongoing weekly or monthly percentage, sometimes, your paychecks won’t align with them.

Think about making investments

Aside from keeping your money in a savings account, you can also invest in a slow or bear market. However, Speak to your financial advisor about making that move. And remember it’s also important to save alongside.

Follow basic investment principles

Before selecting the type of savings retirement plan, make sure you follow basic investment principles. These principles, help you prepare for inflation and other difficult economic times.

In addition, make sure you understand how social security will affect you, so you are quite clear about the benefits and limitations of your social security.

Types of Retirement Savings For Self Employed Plans

Because you are self-employed, your retirement savings for self employed plan depends largely on your commitment. There’s no employer to set up the account for you and evenly match your contribution.

When you are self-employed, you can access some of the plans you would have accessed if you worked for someone.  You can open and contribute to a traditional IRA as long as you received taxable compensation ( which includes self-employment income) during the taxable year and were younger than 70 ½ by the end of the year.

Let’s talk about your retirement savings for self employed plan options:

1.     Roth or Traditional IRA

Like I said earlier, you can apply for this plan, but it’s often best when you just started working on your own. In addition, it works pretty well, if your savings are less than $6,000 a year.

It’s even possible to roll your old 401(k) into an IRA if you’re leaving your job for the business.

However, if you have employees, they need to set up and contribute their own IRAs.

Contribution limits: In addition, you have limits of $6,000 in 2019 ($5,500 for the 2018 tax year), plus a $1,000 catch-up contribution for those 50 or older. This figure might likely change in the coming year.

Tax benefits: There will be no immediate deductions for Roth IRA but withdrawals n retirement are tax-free.

Be careful when selecting the type of IRA to open, in a subsequent post we will talk about the differences, but you should talk to your financial adviser. Be also aware that the IRA has limits for income.  If you earn more than the limit, you won’t be eligible for it.

2.     Solo 401 (K)

If you are a freelancer or small business without employees, then you might consider this retirement savings for self employed plan.  Even if you work with your spouse, you can also use the Solo 401 (K) plan.

Here you make contributions as both an employee and employer.

In the capacity of an employee, you will contribute as plans with a standard employer-offered 401 (K) which means salary deferrals up to 100% of your compensation or $19,000 ( plus $6,000 catchup for those age 50 and older) whichever is less.

As an employer, you will make up an additional 25% of compensation. However, there is a special rule for single-member LLCs and sole proprietors.

You can contribute 25% of your net self-employment income. This is your net profit less half your self-employment tax and the plan contributions you made yourself. Limit on compensation which factors in your contribution is $280,000 in 2019.

Tax benefit: Your contributions will also be made before tax but distributions after 59 ½ years are after-tax. Most people use this plan because it allows them save a lot of money in some years. Understand that your contribution limits also apply per person and not per plan.


Contribution limit: Your contribution limit cannot be more than $56,000 ( plus $6,000 catch-up for those age 50 and older)in 2019 or 100% of your earned income.

If you hire anyone, apart from your spouse, you won’t be able to contribute to the solo 401 (K) plan. The solo plan is available online, but you need to file paperwork with the IRS each year, once you have more than $250,000 in your account.

3.     SEP IRA

The SEP-IRA plan has fewer administrative needs and paperwork than the solo 401 (K). However, it also has similar high contribution limits. In addition, you don’t have to contribute every year, which is a fascinating advantage for you.

If you have employees, you can add them to your plan. However, you must contribute an equal percentage of salary for each eligible employee and you will also be counted as an employee. So on your own, you will pay 10% contribution as compensation for yourself (as an employee) and 10% for each of eligible employee’s compensation as an employer.

The downsides of the SEP IRS is that you have to make those equal contributions for your employees. It’s not also possible to use the SEP IRS on your own. You need to have your eligible employees with you in the plan.

Tax benefits: You can deduct the lesser than your contributions or 25% of net-self employment earnings or compensation – limited to that $280,000 cap per employee on your tax returns. Your distributions in retirement will be taxed as income.

Contribution limits: Concerning contribution limits, you have up to $56,000 in 2019 ($55,000 in 2018) or up to 25% of compensation or net self-employment earnings with a limit of $280,000 limit on compensation. Your net self-employment income again is the net profit less half of your SEP contribution and self-employment taxes paid. There is no catchup contribution. If you want to enroll for this plan, you can set it up online with many online brokers with only a few pieces of paperwork.

4.     Simple IRA

As your small business grows, you might consider the simple IRA. This is used by larger businesses with fewer or 100 employees.

It’s easy to set up and your employees will own their accounts. However your SIMPLE IRA contributions will be lesser than the solo 401 (k) or the SEP-IRA. You also have to make compulsory contributions to employee accounts which can be expensive when you have large number of employees participating. The SIMPLE IRA is also inflexible and early withdrawals before 59 ½ are treated like IRA or early 401 9k0 distributions.

They are also subject to a 10% penalty and are taxed as income. If you even make a withdrawal within the first two years of participating, you will have a 25% penalty and may not be able to roll over a SIMPLE into another retirement account within that two-year period.

Tax benefits: Contributions are deductible and distributions taxed. What you also make to employee accounts are seen as business expenses

Contribution limits: Contribution limits up to $13,000 in 2019 or $12,500 for 2018 (plus catch-up contribution of $3,000 if 50 or older). If you also contribute to an employer plan, the total of all contributions can’t exceed $19,000 (or $18,000 for the 2018 tax year).

Read also: saving money for college.

5.     Defined Benefit Plan

If you are looking at setting up your retirement savings plan so it works like a pension plan, this is a perfect choice.

Here you work for yourself without employees, earn a high income and save a lot for retirement. Your savings will be ongoing but you may have to pay a lot of money to set it up. You can also add employees if you have and make contributions on their behalf.

However, your expenses on setup will likely go up. In addition, the paperwork is pretty heavy and needs a certain commitment to fund the plan yearly. If you decide to increase or decrease the amount, you will also pay additional fees.

The good thing is that you can save as much as $80,000 or more for retirement. If you are so close to retirement, it is even one of the best ways of saving a lot of money.

Contribution limits: Limits are calculated based on expected investment returns, age, and retirement.

Tax advantage: Your contributions are tax-deductible and your distributions when you return will also be taxed as income.


Make sure you fully understand the options you have before you make your choice. This article has presented everything you need to know about retirement savings for self employed. But understand that it shouldn’t be your final decision-maker.

You should always ask questions about the right retirement options for you. Talk to your bank, financial advisor and even your mentor. If you have any questions about retirement savings for self employed , send us a comment below.



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