There are three popular retirement plans for self-employed people: the SEP-IRA, SIMPLE IRA and solo 401(k) plans. These plans differ according to the rules governing them, and the right plan depends on how much an individual wants to contribute and whether the concerned individual has, or plans to have, employees.Know More
IRA stands for individual retirement account, and SEP stands for self-employed pension. A SEP-IRA is a self-employed pension individual retirement account that is governed by the Internal Revenue Service. This plan is typically recommended for entrepreneurs who have no employees. With SEP-IRA, a business owner can contribute 25 percent of earned income up to a stated annual maximum, which for 2014 is $52,000.
SIMPLE stands for savings incentive match plan for employees, and a SIMPLE IRA is a retirement plan specifically targeted to small businesses and self-employed individuals. This plan is simple to administrate and has low administration fees. However, it is not ideal for fledgling businesses with employees, as the employer is liable to match employee contributions to a retirement plan with a cap of 3 percent of the employee's salary. The other alternative is to contribute an amount equal to 2 percent of the salary towards a qualifying plan, even if the employee is not contributing.
The solo 401(k) is a simplified version of the traditional 401k that is designed for self-employed individuals. Under this plan, individuals can set aside a certain portion of their annual salaries up to a certain amount for retirement. For 2014, the amount is $17,500. In addition, they can contribute up to 25 percent of their profit share towards their retirement. There is, however, a maximum dollar amount for the profit share that is set every year; for 2014, this amount is $52,000.Learn more about Financial Planning
Employees may contribute a maximum $12,500 to SIMPLE IRA plans in the year 2015, according to the IRS. Catch-up contributions up to $3,000 may be made by participants 50 years of age and older, if permitted by the SIMPLE IRA plan.Full Answer >
Whether they utilize Great-West Financial or not, all workers should start saving through 401(k) retirement accounts as soon as possible, says Forbes. The longer saved amounts linger in 401(k) accounts, the more interest the accounts accrue. Each saver should cultivate the habit of saving part of every paycheck.Full Answer >
In many respects, the Roth and traditional 401(k) individual retirement accounts (IRA) are very similar, and the main difference between the two has to do with taxes; with a Roth 401(k), the account holder pays contributions into her account with after-tax income, while contributions to a traditional 401(k) are based on pre-tax income, as described by Charles Schwab. Retirees with a traditional 401(k) must pay taxes on withdrawals from the account, but those with a Roth 401(k) can make withdrawals without paying taxes as long as the account has been open for 5 or more years and those withdrawals occur after age 59 1/2.Full Answer >
Those planning to retire before age 62 can get retirement money early by contributing to 401(k) or IRA retirement accounts while employed, reports U.S. News & World Report. Holders of 401(k) accounts can sometimes initiate distributions at age 55, and substantially equal periodic payments can begin even sooner.Full Answer >