3 Retirement Savings Options for the Self Employed

Being self-employed means you don’t have the same benefits as those who work at a regular job.

There is no sick pay or vacation pay, for instance. Neither is there a health insurance package, life insurance, disability insurance, or flexible medical and childcare accounts.

But there is one other key difference between working for an outside employer and being self-employed. It is that other employed persons are often given the chance to open a 401K account through their employer. Self-employed people, on the other hand, do not have that benefit available.

But, there are still ways that self-employed individuals can save for the future. Here are three retirement savings options that can help the self-employed.

1. Invest in Real Estate

Real estate investing is one retirement savings options for the self-employed looking for longer term results. You can invest in real estate even if you don’t have a lot of money to get you started.

Crowdfunding (though brand new and unproven) allows you to invest your money with that of other people so everyone shares the profits. This is usually done through a Real Estate Investment Trust, or REIT.

The REIT allows you the possibilities of having a steady stream of money and diversifying your investments. They are made up of a group of real estate experts who invest your money in ways you would not be able to on your own.

Money is put into more than one property to minimize the risk of loss and increase the likelihood of high gains. In addition, some companies allow you to invest with as little as $1,000 to start.

2. Set up a Simplified Employee Pension

Simplified Employee Pensions, also called SEP IRA’s, are another retirement savings option for the self-employed. You can contribute up to 25% of your 2017 net earnings to these Individual Retirement Accounts.

The money you invest is pre-tax. If you want to set up, fill out an IRS form 5305-SEP Simplified Employee Pension-Individual Retirement Account Contribution Agreement.

Setting up an SEP IRA can be done just before you file your taxes. This allows you to adjust your contribution if your taxes will be high that year. Doing this allows you to lower what you would owe Uncle Sam.

A drawback, unfortunately, is that the largest amount the IRS will allow you to contribute is $54,000. Additionally, if you employee others you must set up SEP IRA’s for them also under certain conditions. To ensure you do it properly, go over the requirements thoroughly before you decide to invest in this manner.

3. Invest Through a Solo 401K for Better Retirement Savings Options

Some self-employed people choose to invest for retirement through a Solo 401K. It allows pre-tax contributions of up to $18,000 per year for those under 50. If you are over 50, the allowed amount increases to $24,000.

Your business can add an additional 25% profit sharing contribution up to $54,000 maximum for this tax year. In addition, you get to control how much you want to invest since there is no set minimum contribution. Another benefit is the ability to roll other IRA’s into this type of account. One drawback, unfortunately, is that if your business has employees you can’t invest through a Solo 401K. It can only be done for you and your potential spouse.

If you happen to have another job there is an additional drawback. Your contributions to the plan will be counted against a regular 401K plan if you have one.

When you are self-employed you should still be able to have retirement savings. As you can see, there are at least 3 retirement savings options for the self-employed that allow you to do this.


3 Retirement Savings Options for the Self Employed was originally published on Due on August 30, 2017 by Kayla Sloan.

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