If you are self-employed you have many of the same options to save for
retirement as employees participating in company sponsored tax-deferred
retirement plans.
*Savings Incentive Match Plan for Employees (SIMPLE IRA Plan):*
A self-employed individual can contribute net earnings from
self-employment up to $11,500 (or $14,000 if you are 50 or older) in
salary reduction contributions AND either a fixed contribution of 2% of
your net earnings from self-employment or a matching contribution equal
to your salary reduction contribution up to 3% of your net earnings from
self-employment.
*Simplified Employee Pension (SEP) Plan:*
One can contribute up to 25% of net earnings from self-employment up to
$49,000, not including contributions for yourself.
*One-Participant 401(k) Plan:*
A self-employed individual can make salary deferrals up to $16,500
($22,000 if older than 50) of compensation from the business. This plan
can be either a deferred (traditional) 401(k) or it can be designated as
a Roth 401(k) plan. Additionally, an additional 25% of net earnings from
self-employment can be contributed up to a maximum of $49,000.
*Profit-Sharing Plan:*
A self-employed individual can decide how much to contribute on an
annual basis up to either 25% of compensation but not to exceed $49,000.
*Money Purchase Plan:*
Contributions can be a fixed percentage of annual income up to 25% of
compensation based on a formula stated in the plan.
*Defined Benefit Plan:*
Contributions are calculated by an actuary based on the benefit you set
and other factors (your age, expected returns on plan investments, etc);
maximum annual benefit can be up to $195,000.
In most cases, a self-employed individual can save more for retirement
in on of the above plans than in an individual retirement arrangement (IRA).
