Self-Employed: What are your retirement saving options?
Being self-employed has many advantages compared to being an employee of a firm. However, retirement planning isn’t quite as easy as signing up for the company 401(k) plan like many of your friends do. That said, with some guidance from a qualified professional, you too have many excellent options. Below are a few choices to consider when planning for your retirement. I’ve focused on the options for those who are self-employed and do not have any employees, but the SEP and Simple options below are also available to those with employees.
A Simple IRA is one option for self-employed individuals. The Simple IRA contribution limit is made up of two parts: employee salary reduction contributions and employer contributions. The employee contribution is limited to $11,500 for 2012. If you are over age 50, you can also make a catch-up contribution of $2,500 for 2012. And, since you are also the employer, you can then make an elective employer match of 3% of net self-employment earnings. You can deduct contributions up until the due date of your tax return, but you need to have the plan set up by October 1st of that tax year unless you are a new business. (more…)