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Self-Employed? Here Are 5 Retirement Savings Options for You

By Dan Caplinger - May 24, 2018 at 6:47AM

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The gig economy is making it more important to protect yourself financially.

It used to be that only the most venturesome of entrepreneurs tackled the business world on their own. The gig economy has changed that, with everyone from Uber drivers to freelancers being treated as self-employed owners of their own independent businesses.

Being self-employed has its perks, but it also means no one else is looking out for you when it comes to retirement savings. Unlike employees with access to 401(k) plans offered by their employers, it's all up to you if you want to set money aside for your golden years. Here are five smart options you can consider to ensure you'll have retirement savings available when you need it.

Jar with cash and green sticky labeled Retirement, next to a calculator.

Image source: Getty Images.

1. A regular taxable account

The simplest option for saving for retirement or any other purpose is simply to open up a regular account at a financial institution. Whether you open a bank account, set up a brokerage relationship, or put money into a mutual fund company, using a vanilla taxable account gives you all the flexibility you need in order to have the access you want to your money. The downside of regular accounts is that you'll have to pay tax as you go, but that isn't always such a burden for long-term investors. In particular, if you keep shares of stock in a taxable account, then any price gains over time won't get taxed until you actually sell the shares, and that deferral can be just as good as what you'd get from investing in the same stock in a tax-favored account like the ones mentioned below.

2. Ordinary IRA contributions

If you work for yourself, your business income counts as earned income for purposes of opening an IRA. For 2018, the maximum contribution limits for IRAs are $5,500 if you're younger than 50 or $6,500 if you're 50 or older. If you choose a traditional IRA, then your contribution will typically be tax-deductible, while those going with Roth IRAs will have the opportunity to enjoy tax-free treatment not just while the money stays in the account but also upon withdrawing funds from their IRAs.


Where things get interesting for self-employed people is in the business-oriented retirement plan options that they have. The SIMPLE IRA lets you save as much as $12,500 if you're younger than 50, with an extra $3,000 catch-up contribution bringing that number to $15,500 in total if you're 50 or older.

In addition to those employee-based contributions, you can also match your regular contributions dollar for dollar up to 3% of your salary as an employer contribution. Alternatively, you can choose to make a non-matching contribution of 2% of salary up to a maximum of $5,500 per year. That second option isn't very useful if you're on your own, but for small businesses that have employees and want to use a SIMPLE IRA, the provisions can be useful.


SEP IRAs, which is short for simplified employee pension, can give high-income earners even more capacity to save. The SEP IRA has much higher contribution limits, allowing you to make contributions of one-quarter of your net compensation up to an overall maximum of $55,000 in 2018. For self-employed people, calculating net compensation is tricky because you have to account both for the SEP IRA contribution and for payments for self-employment tax. But in general, if you take your gross income, adjust lower for self-employment tax, and then take 20% of the remainder, you'll get your SEP IRA contribution limit for the year.

5. Solo 401(k)s

Finally, the solo 401(k) gives self-employed workers the chance to set up their own personal 401(k) plan account. Contribution limits of $18,500 apply if you're under 50 or $24,500 if you're 50 or older. In addition, you also get to make employer contributions that are determined in a way similar to the 20% of adjusted profit rule mentioned above under SEP IRAs.

Pick the best option for you

For some, maximizing retirement savings is the primary goal, and there, solo 401(k)s are the obvious choice. They give you the best of both worlds, allowing combined employee and employer contributions that are extremely lucrative for wealthy entrepreneurs.

If you're more interested in simplicity, though, there's no requirement to go with a sophisticated business-oriented retirement option. Even a regular IRA or taxable account can get the job done if you're smart about it.

The main question is what works best for your particular temperament and situation. Whether you pull out all the stops and choose a complex solo 401(k) or just stick with a tried-and-true taxable brokerage account, you'll be able to save and invest in a way that will make your assets grow over time.

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