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Are you one of the 10 million Americans who own a small business, work part-time or work as a consultant/contractor? Between 6%-7% of Americans are self-employed. Self-employment comes with a number of benefits including flexibility, being your own boss and the ability to do what you love. But these benefits also come with challenges, which include saving for retirement. So how are you supposed to save for retirement when it’s tough to pay for your business expenses? The first step is picking the right retirement plan for you.
Do you work alone? Plan to keep it that way? The SEP IRA is most likely the best fit for you. In fact, it is the most popular plan among sole proprietors.
Do you work alone now, but hope to expand your workforce in the future? A SIMPLE IRA may be the answer for you.
The individual 401(k) is another good choice if you plan on staying solo in your venture and if you are starting to save for retirement late in the game.
Both the SEPs and individual 401(k)s make it difficult for any sole proprietor who wants to hire employees, even just one employee. SEP can require expensive contributions once an employee is hired. With an individual 401(k), you’ll have to stop funding your plan or convert it to a more complicated version. Regardless of your career aspirations, saving for retirement is a must.