Retirement planning differs for self-employed

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Retirement planning for the self-employed

The self-employed might not have the option of saving through an employer’s program, but that doesn’t mean their retirement planning has to suffer. The government has tax-favorable accounts created specifically for small-business owners and others that are self-employed.


The acronym is short for Savings Incentive Match Plan for Employees. The SIMPLE IRA caters to small-business owners — the IRS says it is generally limited to companies with 100 or fewer employees, and generally they cannot have another retirement plan. Essentially, traditional IRAs are set up for each employee. Employees may make contributions, and employers may agree to match that contribution up to a certain point. Employees have ownership of all money in their SIMPLE IRAs.

Simplified Employee Pension plan

The Simplified Employee Pension plan, or SEP IRA, is similar to the SIMPLE IRA with one important difference: Employers make the entire contribution to the plan instead of the employees. Small-business owners can often save more with a SEP than with a SIMPLE IRA. SEP IRA retirement planning allows an employer to put away up to 25 percent of the employees’ net income.

Retirement planning with a Solo 401(k)

The Solo 401(k) is comparable to a company 401(k) but caters mainly to small-business owners with no employees. The plan can include a spouse. Retirement planning with a Solo 401(k) allows you to put away more savings than a SEP or SIMPLE IRA. Profit-sharing options are available with the Solo 401(k). Use Bankrate’s retirement planning calculators to determine contributions to your Solo 401(k).