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Self-employed? You Can Have a Retirement Plan

C Johnson 2014
Charlene S.  Johnson, MBA, CPC, QPA, QKA®, QPFC, TGPC, ERPA
Vice President, Senior Retirement Consultant
[email protected]
(585) 419-0670 x50690

When you work for someone else, the chance to participate in your employer’s retirement plan may be one of the benefits. But when you’re self-employed, arranging to save for retirement is up to you.

The good news is that you can establish a tax-advantaged plan that allows you to contribute every year toward retirement. Consider your options carefully before making a choice.

Traditional or Roth IRA

One of the simplest ways to save, an individual retirement account (IRA) can hold a variety of investments.

  • Contributions to a traditional IRA may be tax deductible. 
  • Contributions to a Roth IRA are not deductible, but qualified distributions are tax free and withdrawals aren’t mandatory during your lifetime. 
  • IRA contribution limits are low — $5,000, or $6,000 for individuals age 50 or older in 2012.

Solo 401(k)

The solo 401(k) is worth considering if you work alone or employ only your spouse. Its relatively high contribution limits allow you to pay less in current income taxes while saving more for retirement. For 2012, you could

  • Contribute up to 100% of the first $17,000 of earnings ($22,500 if you’ll be age 50 or older by year-end).
  • Contribute an additional amount of up to 25% of “earned income” (as tax law defines it), for a total maximum annual contribution of $50,000 ($55,500 if you’re age 50 or older).

Simplified Employee Pension (SEP) IRA

With a SEP, you can contribute and deduct up to 25% of “earned income,” up to an annual maximum of $50,000 (for 2012).

  • SEPs typically are set up for self-employed individuals or small businesses with a few key employees, since contributions also must be made for eligible staff.
  • Contributions can change each year. If cash is tight, you don’t have to contribute anything at all.
  • SEPs are easy to set up and administer.

If you have any questions on which plan works best for your small business, contact our CERTIFIED PENSION CONSULTANT, Charlene Johnson, VP and Retirement Services Officer, at 585-419-0670 ext. 50690 or via email at [email protected].

This material is provided for general information purposes only. Investments and insurance products are not FDIC insured, not bank deposits, not obligations of, or guaranteed by Canandaigua National Bank & Trust or any of its affiliates. Investments are subject to investment risks, including possible loss of principal amount invested. Past performance is not indicative of future investment results. Before making any investment decision, please consult your legal, tax or financial advisor. Investments and services may be offered through affiliate companies.