2024 Maximizing Retirement Contributions

Options When You Are Self-Employed and Have No Employees

Planning for retirement is a critical financial goal, and understanding the various retirement plans available is essential for maximizing your contributions and ensuring a comfortable future. Let's explore the key features of different retirement plans, including their maximum employee and employer contribution limits, to help you make informed decisions.

SEP-IRA

A Simplified Employee Pension (SEP) IRA is a retirement plan that offers significant benefits for self-employed individuals and small business owners. Unlike some other plans, the SEP-IRA does not have a specific employee contribution limit. Instead, contributions are made by the employer.

Employer Contributions:

• Up to 20% of your net self-employment income.
• Not to exceed $69,000 in total contributions for the year.

401(k) Plans

401(k) plans are one of the most popular retirement savings options due to their high contribution limits and potential for employer matching.

Employee Contributions:

• $23,000 annually.
• $30,500 if you are 50 or older (catch-up contributions).

Employer Contributions:

• Up to 20% of your net self-employment income.
• Total combined employee and employer contributions cannot exceed $69,000.
• For those 50 or older, the combined limit increases to $76,500.

SIMPLE-IRA

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is designed for small businesses and self-employed individuals, offering a simpler and more cost-effective way to save for retirement.

Employee Contributions:

• $16,000 annually.
• $19,500 if you are 50 or older (catch-up contributions).

Employer Contributions:

Employers can contribute in two ways:

1. Matching Contribution:
   • Equal to the lesser of 3% of your defined self-employment income or the amount of your elective deferral.
2. Nonelective Contribution:
   • 2% of your defined self-employment income, limited to no more than $345,000.

Additionally, the SECURE Act 2.0 allows employers to make uniform contributions to each employee's plan, provided these contributions do not exceed the lesser of 10% of compensation or $5,000.

Traditional IRA

A Traditional IRA allows individuals to save for retirement with tax-deferred growth.

Employee Contributions:

• $7,000 annually.
• $8,000 if you are 50 or older (catch-up contributions).

Employer Contributions:

• Not applicable (N/A).

Roth IRA

A Roth IRA offers tax-free growth and tax-free withdrawals in retirement, making it a popular choice for many savers.

Employee Contributions:

• $7,000 annually.
• $8,000 if you are 50 or older (catch-up contributions).

Employer Contributions:

• Not applicable (N/A).

Defined Benefit Plan

Defined Benefit Plans provide a guaranteed payout at retirement, which is calculated based on factors such as salary history and duration of employment. Contributions to these plans are actuarially determined, meaning they are calculated based on the plan's benefit formula and the actuarial assumptions used.