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How to Save for Retirement When You're Self-Employed

Saving for retirement. Just like not sticking your fingers in the electrical socket, your parents were right about this one too. It may seem boring, and for many of us, retirement feels lightyears away, but that doesn’t make it any less important.

For those who own or work for a traditional business that offers a retirement savings account such as a 401k, starting to save for retirement can be as simple as signing up for the plan and having money put aside straight from your paycheck. However, there are plenty of people who don’t have that option. Those that own a business consisting just of themselves or those who participate in the gig economy, or even those that don’t have a job with retirement benefits need to figure out the best way to start saving.

How to Save for Retirement When You’re Self-Employed: The Challenges

There are many advantages to being your own boss, but saving for retirement is not necessarily one of them. It may not actually be harder to save, but it does require a lot more proactivity. When you are self-employed there is no company 401k that you can simply enroll in.

Furthermore, this also means that you miss out on any sort of employer match. All of your retirements savings will come from you.

You have to actively seek a retirement plan that is right for you and figure out how to have the discipline to set that money aside regularly.

How to Save for Retirement When You’re Self-Employed: The Advantages.

That said, there is actually a pretty big advantage to saving for retirement as someone who is self-employed. There are tax advantages that allow you to put away more money in a retirement account than those working a more traditional job.

What Are the Retirement Options?

There are four main options to save for retirement when you are self-employed

There are a few retirement options available for those who are self-employed. The best one for you will depend upon your income, your age, how much you want to be saving, and whether or not you have a business and/or employees.


An IRA is one of the simplest ways to save for retirement for someone that is self-employed. Anyone with taxable compensation can open an IRA, and it’s a fairly simply process. Though, in order to open a Roth IRA your income has to be below a certain level. With an IRA you can only contribute up to $6,000/year ($7,000 if you are over 50) as of 2019.


A SEP IRA works about the same as a traditional IRA, except instead of contributions being capped at $6,000 per year (2019), contributions can get up to the lesser of either 25% of your compensation or $56,000 (2019). The major drawback is if you do have a few employees that are eligible for a SEP IRA you will need to provide them with the same percentage of contribution as you are putting in your own account.

Solo 401k

Aka Solo-k, Uni-k, or one-participant K, this retirement plan is meant for one person or for one person and his/her spouse. Unlike with an IRA, that one person needs to be a business owner.

It’s just like a traditional business 401k, but the business owner does not have any employees, except perhaps a husband or wife employee. Like a business 401k, the employee makes a contribution and the employer can make a contribution, but unlike a traditional business 401k, the employer and employee are the same person.

Defined Benefit Pension Plan

A defined benefit plan is a good choice for an older, high-income individual that is self-employed or has very few employees. Like the pension plans big companies used to traditionally offer, this plan allows you to set a determined amount that you will be paid throughout retirement. The defined benefit plan also allows older individuals to put contribute large amounts of money. However, beware–if you do have employees, you will also be responsible for contributing on their behalf. Plus, thetsse accoun are expensive to set up.

3 Simple Tips for Saving for Retirement

Once you’ve figured out your plan of action for a retirement fund, it’s time to actually start saving.

1.Start now. If you are young, it may seem silly, but it is never too early to start saving for retirement.

2. Figure out how much money you will actually need for retirement. That may change over time, but it is a good idea to have somewhat of an idea of at least a minimum amount that should be saved.

3. Make simple lifestyle changes. We hear about people cutting back when things are getting tight, but there are probably some petty expenses you have right now that you can cut back on. Instead of using those savings on other frivolous things, save it for retirement!

Looking for more advice for your small business? Contact us at Lumen Advisory and Finance.