Self Employed Retirement Plans

Everyone dreams of being their own boss, not answering to anyone but him (or of course, her) self.  But once the initial thrill of being in charge of your own destiny, the reality sets in: “now I’ve got to take care of my own retirement”.  No more relying on your employer to make sure that you’re putting a little something away for your future, now you’ve got to do it for yourself.  So what are your options?

One option is an SEP (Simplified Employee Pension) IRA which means that you can put away up to 20% of your self-employment earnings into a traditional IRA

Another option available is the Solo 401(k) plan, also known as the Individual 401(k).  The advantage here is that you can contribute 100% of your first $15,500 of your self-employment earnings, and then 25% of anything over and above that.  However, be prepared that your bank may not know about it as the plan is only just becoming more popular.

Lastly, you have the option of a Keough plan.  A Keough plan is similar to an IRA, but is split into a Defined Contribution Plan and a Defined Benefit Plan.  With the first of these, you are allowed to contribute up to $30,000 a year, or 25% of your earnings.  However, this amount remains fixed for the duration of the plan.  With the second, you set a “benefit goal”, and make regular assessed payments based on what you have available, rather than a regular fixed payment.