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Updated: May 22, 2023

Some Retirement Options


There are several different types of sensible retirement plans available for the self-employed. Many of these retirement plans offer options on a tax-deferred basis just like any employee participating through a company plan. You will need to understand the tax rules, savings contributions processes and benefits of each account before making a sound decision. We guide you through the pros and cons of each so you can make a better-informed decision on your retirement account.

Individual 401k plans

The Individual 401(k) plan or Solo-k plan is not a new type of 401(k) plan. It is a traditional 401(k) plan covering a business owner with no employees. These plans have the same rules and requirements as any other 401(k).

You will need to do a little work in calculating your maximum amount of elective deferrals and non-elective contributions. It will equal your net earnings from self-employment after deducting one-half of your self-employment tax and all contributions made for yourself. Your accountant will have to file a Form 5500-SF if your funds exceed $250,000.

Keogh plans

There are 2 basic types of Keogh Plans: defined-benefit, and defined-contribution. In a defined-contribution plan, a fixed contribution is made per pay period. The defined-benefits plan relies on an IRS formula to calculate the rate of contributions. Defined-contribution plans allow for profit-sharing, which allows you to decide how much to contribute on an annual basis. The maximum annual benefit can be up to $230,000 for 2021.

Retirement plans for self-employed people were formerly referred to as “Keogh plans” after the law that first allowed unincorporated businesses to sponsor retirement plans. Since the law no longer distinguishes between corporate and other sponsors, the plan is seldom used.

Simple IRA

A Savings Incentive Match Plan for Employees Individual Retirement Account is a type of tax-deferred employer-provided retirement plan that allows employees to set aside money and invest it to grow for retirement. It is an employer-sponsored plan but offers simpler and less costly administration fees.

It is ideally suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan. Only an eligible employer which has less than 100 employees can establish a Simple IRA. The plan requires a minimum contribution from the employer and employers can match employees’ contributions of up to 3%.

Withdrawal penalties will be incurred if a participant withdraws before the age of 59.5. Employees may elect to contribute to their own plans and are always 100% vested in and have complete ownership of all Simple IRA money. Contributions are inflexible as the employer must always contribute but there are lower contribution limits than some other traditional IRAs. The account is easy and inexpensive to operate, and employees share responsibility for their retirement.

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