Small Business Grants logo Everything To Know About
Small Business Grants and More

Home About Us Find/ Apply For Grants News/Blog Resources What To Know

Types of Retirement Plans for the Self-Employed

Types of Retirement Plans for the Self-Employed

The employer-matching 401(k)—where an employee defers their pre-tax income, and their employer matches their contributions in a tax-exempt investment account—is the backbone of many working people’s retirement plans. But if you don’t have an employer to match funds because you are the employer, you may find yourself feeling uncertain about retirement. Don’t worry—a comfortable retirement is still within reach, even without the traditional 401(k), thanks to several financial instruments. Here are some of the types of retirement plans for self-employed workers that will ensure financial stability after your working days are over.

Solo 401(k)

The employer-matching 401(k) gets all the attention, but there are 401(k) plans for people without bosses, too. Enter the individual or solo 401(k). If you own your own business and you and your spouse are the sole employees in that enterprise, then you are eligible for a solo 401(k). This provides the same tax benefits as its employer-matching counterpart—only without the matching funds, of course. As the plan only covers one person, the employer/employee, it would require adjustment to ensure fair benefits for all if your business grew to include more workers.

Self-Directed IRA

Because you are already a sole proprietor, you may want total control of your retirement portfolio as well. While traditional IRAs can only include cash, stocks, bonds, and mutual funds, the self-directed IRA offers unparalleled versatility in where you can invest. A diversified approach to not only stocks and bonds but also precious metals, real estate, and promissory notes could be the key to a fulfilling retirement—one that you built with hard work and your personal financial creativity.

Simplified Employee Pension Plan

Simplified employee pension plans, or SEPs, are available to small business owners and self-employed workers alike. SEPs are particularly good fits for the self-employed because they allow for high flexibility in contributions, and any self-employed person understands that year-over-year business is rarely consistent. Though a SEP allows for annual contributions of up to 25 percent, this value can fluctuate as you, the business owner, see fit. While SEPs do allow for early withdrawals, these withdrawals count as taxable income and are taxed at an additional 10 percent as a penalty.

Choosing one of the many types of retirement plans for the self-employed is one of the most important pieces of financial planning you can do. You needn’t worry about what you’re missing out on with an employer-matching 401(k). As a small business owner and sole proprietor, you can take pride in being the sole proprietor of your golden years as well.