Saving for Retirement when you are Self-Employed
Retirement is something that everyone should be thinking about, no matter what stage of life they are in. It's never too early to start planning and saving for the future, and one of the best ways to do this is by taking advantage of the various tax benefits offered by retirement accounts specifically designed for self-employed individuals.
There are several options available to the self-employed when it comes to saving for retirement, each with its own set of tax benefits and eligibility requirements.
The Solo 401(k) is a retirement account that is available to self-employed individuals or small business owners with no full-time employees other than the owner(s) and their spouse(s). Contributions to a Solo 401(k) are tax-deductible and any earnings on the account grow tax-free until withdrawal. The maximum contribution for 2023 is $23,500, or 100% of earned income, whichever is less.
Another option for the self-employed is the traditional IRA . This account allows self-employed individuals and small business owners to contribute up to $6,000 of their net earnings on a tax-deductible basis. However, the tax benefits of these accounts are subject to income limitations—so not all taxpayers can benefit from them.
The final option is the SEP-IRA (Simplified Employee Pension Individual Retirement Account), which is like a regular IRA, but it allows for higher contribution limits. Under a SEP plan, self-employed individuals and small business owners can contribute up to 25% of their net earnings (up to a maximum of $66,000 in 2023) on a tax-deductible basis.
No matter what stage of life you are in, it's never too early to start planning for retirement. By taking advantage of the tax benefits offered by retirement accounts specifically designed for the self-employed, you can ensure a secure financial future for yourself and your loved ones.
If you would like a tax analysis on the best plan for you and your family, contact a Tax Lawyer at Safeguard Law, PLLC today!