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Retirement Plans for the Self-Employed and Small Businesses

Paul Haarman

By Paul Haarman

The culture of self-employment is on the rise in America, says Paul Haarman. It has already been there, and it’s growing even more today. Even studies also showed there were 16 million self-employed Americans in 2019, and nearly 30 million people joined services with them, representing 30% of the workforce. Whether you run a small business or a lone entrepreneur, you may have to take care of your retirement savings by yourself. However, you must know that there are a few employer-funded retirement plans, which can benefit you. So here is a quick view of some of these plans for you to consider regardless of you employ people or work as an independent freelancer.

Savings Incentive Match Plan for Employees IRA (SIMPLE IRA)

If you own a small company and need another retirement program for your workforce, you can pay attention to the SIMPLE IRA. You have to contribute to each employee account while abiding by a few parameters. You have to match up to 3% of the total salary of an employee. A part of employee salary should also go into the account even if they don’t contribute, and this can be 2% of the individual’s overall package. The funds in these accounts belong to the respective employees. You can also expect tax benefits for contributions. Employees can transfer up to $13,500 a year to this account. Age 50 and above can pay more, which comes to $16,500.

Paul Haarman says this plan can be favorable for employers as it reduces taxable income.

Payroll Deduction IRA

If you want to reduce your burden as a small business owner, it can be an ideal retirement plan to choose. Employees can select their preferred financial institution for opening an IRA account and activate automatic payroll deductions to fund their program. As an employer, you only have to transfer the authorized deductions from their salaries to the respective IRA accounts. In this system, only workers have to contribute. You don’t have to do any filings. Since it is easy to access and involves zero or less cost, you can find this plan quite useful. Contribution limits can be $6,000 to $7,000 for people aged 50 or more.

Paul Haarman says many small businesses can find it convenient as they don’t have to contribute anything from their end.

Solo 401(k)

This account is for self-employed individuals working solo or as freelancers in addition to a spouse who is at least a part-timer. Like 401(k) plans, you get an option to choose from a traditional Solo 401(k) and a Roth Solo 401(k). You can fund this account as an employer and an employee too. Paul Haarman says it allows you to contribute more to your retirement plan than other options. Employee contribution cannot be more than $19,500 a year. If you are 50 years old or more, you can deposit $26,000. As an employer, you can direct 25% of your earning into the account. However, the sum of employee and employer contributions cannot be more than $57,000 (or $63,500 if you are 50 or above).

Retirement planning is a critical part of your life, and these programs can help you with this personal economic goal.