Self-employed individuals have the opportunity to save for retirement through a variety of options, including individual retirement accounts (IRAs) and solo 401(k) plans. These plans allow for individuals to save on a tax-deferred basis, meaning that contributions made to the account are not subject to income tax until the funds are withdrawn.
Individual Retirement Accounts (IRAs) are a popular option for self-employed individuals. There are two main types of IRAs: traditional and Roth. Contributions to a traditional IRA may be tax-deductible, and the funds grow tax-free until withdrawal at retirement age. With a Roth IRA, contributions are made with after-tax dollars, but the funds grow tax-free and can be withdrawn tax-free at retirement age. Another option for self-employed individuals is a solo 401(k) plan. This type of plan is similar to a traditional 401(k) plan offered by an employer, but it is designed for the self-employed individual. It allows for both employee and employer contributions, and has higher contribution limits than traditional IRAs. Self-employed individuals may also consider a Simplified Employee Pension (SEP) plan. This type of plan allows for contributions to be made on a tax-deferred basis, and has relatively high contribution limits.
Overall, self-employed individuals have many options for saving for retirement. It is important to consider the individual's specific financial situation, as well as the benefits and drawbacks of each option, in order to select the best plan for their needs. It is also important to consult a financial advisor or tax professional for guidance. Reach out today to find out how you can maximize your retirement while minimizing your taxes.