The Best of Frisco Financial Top Advisor for 7 consecutive years, Christopher Fess has been working in the finance industry for more than 30 years. Throughout that time, he has earned several licenses, including his Series 63 and 24 licenses. A financial advisor at Fess Financial + Life & Legacy Financial, Christopher Fess has also taught thousands of people about everything from asset protection to retirement planning.
While there are plenty of benefits to being self-employed (such as greater freedom), self-employed individuals are solely responsible for saving for retirement. Fortunately, they usually have access to the same types of retirement savings plans as traditionally employed individuals, such as a 401(k) and IRA.
A one-participant 401(k), or solo 401(k), functions in the same way as employer-sponsored 401(k) plans. However, due to their self-employed status, those who have solo 401(k) plans set up can contribute to their retirement plans as both the employee and employer. When contributing elective deferrals, individuals are still subject to maximum annual contribution limits, but they can make non-elective contributions to the plan of up to 25 percent of their total compensation each year.
IRAs, either traditional or Roth, are also options for self-employed individuals. They are particularly beneficial to new entrepreneurs, and can be formed from old, employer-sponsored 401(k) accounts. While IRAs are still subject to annual contribution limits set by the Internal Revenue Service (IRS), they are one of the easiest methods of saving for retirement as a self-employed person.
There are also Savings Incentive Match Plans for Employees (SIMPLE) and Simplified Employee Pension (SEP) IRAs. Both IRAs are similar if at least one employee is covered by the plan, but they do have drastically different contribution limits. For 2020, the SEP IRA limit is roughly $57,000, while the limit for a SIMPLE IRA is $13,500.
Christopher Fess 