For responsible workers a 401 K plan is very beneficial when it comes to retiring. These options are relevant to the self employed as well. There are many ways to save for retirement while self employed. There are services that create investments for self-run companies and let them make a certain percentage of contributions from their earnings to the 401 K plan. By having a self employed 401K plan business owners can make contributions meaning better tax deductions and lowered taxable income. It also includes loans without taxes, tax deferred growth, flexible contribution levels that correspond with the cost of living adjustments, as well as a lower cost compared to traditional 401 K plans. The self employed 401 K plans are most beneficial to business owners who do not have full time employees or run the business with only a spouse. If the plan assets exceed 250,000 the IRS form 550 needs to be filed every year and if any full time employees are hired out the business owner most revert to the traditional retirement plan.
The SEP IRA is another retirement plan that benefits the self employed. The SEP IRA contribution limits are 49,000 which are 100 tax deductible from personal income that is part of the plans appeal. It also has flexible contribution levels and requires very few acts of administration from the business owner. The SEP is a more realistic choice when a business owner wants to contribute 25 of their W-2 earnings or 20 of net self employment income. This is good to have if you dont plan on needing a loan for your business.
When it comes to choosing a retirement plan it is important to compare your options. It is also important to keep in mind that you can easily convert from a SEP IRA to an individual 401 K plan when your needs change and you want a higher contribution limit or you are planning on taking out a loan. Either way the options are readily available for the business owners who do not have full time employees or manage a business with just their spouse.