Self Employment and Retirement

  • Robert S. Thomas,
  •   Taxation
  •   Comments Off on Self Employment and Retirement


Self-employment offers what many Americans dream of: freedom and autonomy. With self-employment, however, also comes great risk. Legal risk. Financial risk. Emotional risk. A lot of these risks can be addressed with hard work, a sound business plan, insurance, a trusted attorney, and methodical planning.

In addition, if you work for yourself, one of the issues that you must eventually address is how you are going to retire. Fortunately, you have several options of retirement plans.

Simplified Employee Pension (SEP)

A simplified employee pension (SEP-IRA) is an IRA tailored to people who work freelance and for small business owners. Self-employed individuals can contribute up to 25% of their annual self employment income toward a SEP-IRA, with a 2017 limit of $54,000. Small business owners can also contribute to SEP-IRAs for their employees, but employees cannot contribute to their accounts themselves.

SEP-IRAs are offered by most of the same financial institutions that offer traditional IRAs. And like IRAs, contributions are not taxable when they are ultimately withdrawn. If you are interested in a SEP-IRA, you must complete and file the following agreement with the IRS prior to opening an account.

Solo 401(k) Plan

A solo 401(k) plan, also referred to as an “individual”, “self employed”, or “one-participant” 401(k), is a traditional 401(k) plan that is specifically tailored to a small business owners with no employees. It may cover that person individually, or may also cover the small business owner’s spouse.

It allows the participant to defer up to $18,000 of income annually if they are below the age of 50, and $24,000 for participants older than fifty. Further, participants can contribute an additional 25% of their self-employment net earnings.

Savings Incentive Match Plan for Employees (SIMPLE IRA)

With a SIMPLE IRA, you are essentially treated as both an employer and an employee. This plan allows you to reduce your earnings by putting 100% of your net self-employment earnings into a SIMPLE IRA. However, there is a limit of $12,500 if you are below the age of 50 and $15,500 for people over fifty years old. In addition, you must make a 3% matching contribution or a 2% fixed employer contribution.

Contact a Tax Attorney

Owning your own business can be confusing and challenging when it comes to taxation. However, it doesn’t have to be. If you need tax advice and guidance to build your business and plan for your future, contact the Law Offices of Robert S. Thomas. I have a Master of Law Degree (LLM) in Taxation, and a license to practice in the United States Tax Court. Contact The Law Offices of Robert S. Thomas at 847-392-5893 to schedule a consultation or visit our website today.

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