4 Retirement Plan Options for Self Employed

By MBO Partners • November 19, 2024

2 MIN

Key points

Many self-employed professionals worry about the difficulty and unpredictability of retirement planning.
A traditional career offers built-in retirement plans, but options are different when you work independently.
Your personal objectives and income level will be important factors when reviewing retirement options.

Self-employed professionals enjoy the flexibility, control, and creativity an independent career offers, but the challenge and uncertainty of planning for retirement is a common concern. At a traditional job, you have the benefit of built-in retirement options, but this field can be more difficult to navigate on your own.

Fortunately, there are several solutions available. The right one for you will depend on a number of factors including your personal goals and income level, which you can discuss with a financial advisor.

4 Retirement Plan Options for Self-Employed Professionals

The decision on which plan you choose ultimately depends on whether you can contribute 25% or more of your income to retirement savings.

If the answer is no, you have two options for offering employees a retirement savings option:

1. Simple IRA:

This is ideal for small businesses with less than 100 employees and has several advantages:

Easy to create and maintain
Minimal fees
Tax-deductible contributions
Customizable employee contributions
Tax-deferred growth

2. SEP IRA:

This is great for independent professionals with few or no employees looking to contribute up to 25% of their income to retirement. Advantages are:

Easy to create and maintain
Minimal fees
Customizable employee contributions
Tax-deferred growth

If you can contribute 25% or more of your income to retirement savings, your best options are a Solo 401(k) or a Defined Benefit Plan.

3. Solo 401(K):

This is ideal for independent professionals with no employees looking for a flexible way to save a lot for retirement. Advantages are:

High contributions limits
Customizable employee contributions
Tax-deferred growth

4. Defined Benefit Plan:

This is a great option for independents with high, stable incomes and few or no employees, looking to save a lot for retirement. Advantages are:

Very high contributions limits
Tax-deductible contributions
Financial risk mitigation
Tax-deferred growth

Here is a summary of the retirement options available to self-employed professionals. Answer the questions in the infographic below to discover which one is best for you.

retirement options for self employed