David Kirkpatrick

December 2, 2009

Retirement planning for the self-employed

Filed under: Business — Tags: , , , , , — David Kirkpatrick @ 4:46 pm

Are you self-employed and looking for retirement planning options? Of course you take the process completely into your own hands through savings and investing, and I bet that’s the approach a lot of self-employed tax payers do. Being self-employed at all takes a certain amount of independence in your character. For the self-employed looking for more traditional retirement planning that’s geared for their specific needs two decent options include a solo 401(k) and a Simplified Employee Pension (SEP).

And keep in mind the tax savings from these retirement planning and saving vehicles. Here’s a good breakdown on what circumstances lend best to each option.

From the link:

A solo 401(k) may be your best bet if most of your income is from self-employment. You can contribute $16,500 to a solo 401(k) in 2009 plus 20% of your net business income (which is business income minus half of your self-employment tax), up to a maximum of $49,000 in 2009. You can also make a catch-up contribution of $5,500 if you’re 50 or older. You can’t contribute more than your business income for the year, but even if you earn just $16,500 from self-employment, you can contribute the entire amount to a solo 401(k). You must open a solo 401(k) by December 31, and you have until April 15, 2010, to make your 2009 contributions Your combined contributions to a solo 401(k) and any 401(k) you may have through another job cannot exceed the contribution limits.

If you have a 401(k) through a primary job and earn some freelance income on the side, a SEP-IRA may be a better option. It’s easier to set up — you can open an account at most brokerage firms or mutual fund companies that offer IRAs — and you can set aside 20% of your net business income, up to a maximum of $49,000 in 2009. You have until April 15, 2010, to open a SEP and make your 2009 contribution. See Do-It-Yourself Retirement Plans for more information.

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