Retirement saving options for the self-employed


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Understand the options for funding your retirement and start saving sooner rather than later to grow the largest nest egg possible.

When you’re self-employed, it’s easy to delay saving for retirement. Running your business and serving clients is always urgent. Saving for retirement may not seem urgent, but it’s important because the sooner you start saving—even just a small sum—the more time you’ll have to grow your investment.

Retirement savings options when self-employed

If you don’t have a retirement plan in place, the first thing to do is understand your options.

There are five main choices for the self-employed:

  • Traditional or Roth IRA (Individual Retirement Account)
  • Solo 401(K) — used by business owners without employees
  • Simplified Employee Pension (SEP IRA)
  • Savings Incentive Match Plan for Employees (SIMPLE IRA)
  • Defined benefit plans like profit-sharing or money purchase plans

Your plan determines how much you can contribute

The IRS determines how much you can save for retirement on a tax-deferred basis and limits vary by plan. For example, the 2019 limit for IRAs (traditional or Roth) is $6,000; if you’re 50 or older, you can contribute an additional $1,000 for a total of $7,000.

With SEP IRAs and Solo 401(k)s, you can stash up to $56,000 for retirement in 2019, plus another $6,000 if you’re 50+. The actual amount depends on your compensation.

A SIMPLE plans allows contributions up to $13,000 but limits catch-up savings to $3,000.

Consider when you’ll pay taxes

When taxes on income used for retirement savings are paid varies by plan. With most plans, contributions are made with pre-tax dollars. That means you don’t pay taxes on that income and subsequent earnings until you make withdrawals from your retirement account.

A Roth IRA is funded with taxed income but allows you to withdraw your savings and earnings tax-free when you reach retirement age. According to Dave Ramsey, if you contribute the maximum allowed to a Roth IRA each year, potentially you’ll have a nest egg of nearly $1.5 million after 30 years.

Pay your future self first

Take a cue from employer-sponsored plans and make retirement savings automatic with each paycheck. Deposit your retirement savings to pay your future self first, then pay your salary. This is a more effective plan than saving whatever is left over at the end of the month.

Retirement planning can feel overwhelming in addition to running your business but you don’t have to figure it out alone. Come in to any of our offices and talk to our staff.

Do you have business banking questions? Contact our knowledgeable business development managers or call 800.991.2221. We’re here to help you grow your business!


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Do you have a business banking question?

Make an appointment with our business development team today!

Contact Us

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