How to Save for Retirement if You’re Self Employed


The following is a guest post from my new blogger friend, Jessica. Take it away Jessica!

More and more Americans are finding themselves in the unique category of being self employed. Whether you’re a freelance writer, small business owner, stay at home mom that does a little work on the side, or simply just your own boss, you’re one of 10 million people in this country that pays yourself. With this comes a lot of benefits such as flexibility, certain tax write-offs and getting to work from home. But navigating one’s finances when you’re an entrepreneur just got a little trickier. You may have to budget better due to unpredictable income streams, and you’re tax payments to the IRS and State are now up to you to estimate. But one thing that many people who are self-employed neglect is their retirement account. It’s no longer as straight forward as the employee sponsored account that automatically came out of your paycheck. The good news is that there are some really fantastic retirement savings options especially for you – so read on.


If you’re self employed with no employees, this may be a good retirement fund option. You can contribute up to 25% of your self-employment net income, or $53,000 in 2015. What I like most about this account is you can set it up anytime during the year and make contributions any time during the year, up to your tax filing deadline when you’re figuring out your taxes and want to reduce your tax burden. This is great if you’re not sure how much extra cash you’ll have to set aside for retirement during the year.   That way if you’ve had a bad year, you can scale back how much you were planning to contribute. Or go big if you’ve had a good year.

One Participant 401(k)

This is a good plan if you have a lot of excess cash to contribute to retirement. Unlike the SEP IRA above, you can contribute 20% of your self-employment net income with no cap, plus an additional $17,500 in contributions and a catch-up contribution of $5,500 if you’re 50+. If you’re older and self-employed and trying to play catch-up on your retirement, or had a lot of excess income during the year, this could be a good plan for you. This is also an option for anyone working for an employer that doesn’t offer a 401(k).

Simple IRA

This is the best option if you’re a small business owner with less than 100 employees. You can contribute up to 3% of your self-employment net income, and must also contribute to your employee’s retirement accounts after the first year. The rule is you can match dollar for dollar up to the first 3% of their contributions, or a flat 2% of what they earn regardless of their contributions. The benefit to this plan is that it is easier to set up and less costly than a traditional employer sponsored defined contribution plan. An employee cannot contribute more than $12,500 in 2015 to these types of plans.

Are you self employed? How do you save for retirement?

Jessica is the owner of High Heels High Yields, a blog that provides investment and savings advice for women that’s witty and fun – think Bloomberg meets Bossypants! You can read more at High Heels High Yields or follow her on Facebook.

*Part of Financially Savvy Saturdays on brokeGIRLrich, A Disease Called Debt and One More Broke Twenty-Something*

Photo courtesy of: eltpics

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