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.
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.
401(k) plans are one of the most popular retirement savings options due to their high contribution limits and potential for employer matching.
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.
Employers can contribute in two ways:
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.
A Traditional IRA allows individuals to save for retirement with tax-deferred growth.
A Roth IRA offers tax-free growth and tax-free withdrawals in retirement, making it a popular choice for many savers.
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.