Retirement Planning Tips for Self-Employed Professionals

By MBO Partners • October 31, 2024

4 MIN

Key points

There are multiple retirement options available for independents to build financial security.
Before choosing a retirement plan, it’s important to weigh the pros and cons of each option.
Working with experts can help independent contractors effectively navigate and choose retirement options.

Over 27.7 million independents work full-time (15+ hours per week), according to MBO’s State of Independence report. Yet while you may be passionate about your independent career, working full-time might not always be the plan.

Whether you’re just starting your small business or have an established list of clients, it’s always good to start thinking about your retirement sooner rather than later. Avoid future uncertainties and challenges with these three retirement planning tips.

1. Consider Your Priorities in Retirement

Before diving into specific retirement plan options, it is important to consider the benefits and pros and cons of your investment decision.

Commitment. Plans allow (and often require) annual contributions, but it’s important to understand whether certain plans will allow the contribution amount to be adjusted should your business (and income) shift in either direction.
Timing is Everything. Plans may have specific deadlines (April 15, December 31, etc.) should you wish to make contributions in a particular year.
Tax Benefits. Some plans on the market will allow for larger contributions than others, should you be financially equipped to do so. Most of the time, larger contributions to retirement savings will result in bigger tax breaks.
Additional Costs. While it’s your money, there are additional costs associated with each retirement plan option. Hiring an accountant or actuary to tackle the backend and analytical responsibilities tied to a retirement plan may be needed, especially since some plans require your information to be reported to the government. The time/resources needed are certainly worth evaluating before selecting a particular plan.

2. Review Your Retirement Plan Options

While employees can rely on corporate 401(k) plans and investment opportunities, independents must be more proactive, and, at times, creative. A number of options remain available for independents to ensure their financial security. These include:

IRAs – SEP / Simple / Roth	Simple: Simple: Simple IRAs are retirement plans that allow workers to contribute compensation that is not taxed until it is distributed.	Roth: The main differentiator between a Roth IRA and other available retirement options is that tax breaks are granted on money withdrawn from the plan during retirement, as opposed to when the money is deposited.	SEP: Simplified employee pensions (SEP) offer a high amount of flexibility with low administration costs. For 2020, contribution maximums are set at $57,000 or 25% of an individual’s income.
Solo 401(k)	For independents who wish to save more money than allowed by a SEP-IRA, solo 401(k) plans are another option. Contribution limits as an employee and employer for 2020 are $57,000 ($6,500 more if over age 50). Though they require more paperwork and administration than a SEP-IRA, solo 401(k) plans can also be borrowed from to cover emergency expenses.
Defined Benefit Plan	Traditionally, defined benefit plans are geared toward workers in governmental and public entities (and large corporations) and offer an employer/sponsor-provided monthly benefit predetermined by a formula based on the worker’s earnings history, tenure of service, and age. Unlike IRAs and 401(k)s, this does not depend on individual investment returns.

3. Get Support From the Experts

More and more independents continue to change the definition of retirement. While many may no longer be interested in working full-time, they feel driven to be a part of the industries to which they’ve contributed many years of expertise and success. For more advice or information about your retirement, contact our team of experts today.

The information provided in the MBO Blog does not constitute legal, tax, or financial advice. It does not take into account your particular circumstances, objectives, legal and financial situation or needs. Before acting on any information in the MBO Blog you should consider the appropriateness of the information for your situation in consultation with a professional advisor of your choosing.