Pension Plans of the Self-Employed

Pension Plans - Complete Controller

Those who are self-employed face the same future concerns as those who are employed by businesses. Self-employment offers a lot of freedom, and more and more individuals are opting to branch out and be their boss. Does this mean you can’t save for retirement or have a pension plan? Check out America's Best Bookkeepers

The answer is that you can have all the same options that employees in corporations have with some differences in the process. These differences can significantly impact your decision to have a plan and which one works best. Here are pension plans with some details on how to establish them and the advantages of each.

  1. Traditional or Roth IRA

Both types of IRAs are great for those starting in self-employment. You can also roll your 401K into an IRA if you leave traditional employment to strike out on your own. Traditional IRAs are typically pre-tax contributions and will be taxed at the time of withdrawal after 59 1/2. Roth IRAs are contributed after the income is taxed accordingly will be tax-free at the time of withdrawal after 59 1/2.

IRAs have limits to contributions that are smaller than other pension plans. Therefore the overall pension savings are lower, but the tax benefits make this option number one for consideration. Check out America's Best Bookkeepers

  1. Solo 401(k)

A solo 401(k) can only be done for a self-employed individual who has no employees. If you intend to expand your business, it is not suggested that you contribute to this pension plan. But if you intend always to be the sole employee or work with a spouse (an exception), this plan is much like a larger business 401(k) plan.

This pension plan has an advantage over an IRA in that the limits of yearly contributions are much higher. Like the traditional IRA, the solo 401(k) is saved from pre-tax income and would require taxation upon withdrawal after 59 1/2. This pension plan option may be more comfortable for the self-employed as most are familiar with 401(k)s because every company that offers benefits has a 401(k).

  1. Defined benefit plan

Though the defined benefit plan is similar to an IRA or solo 401(k) for the self-employed person with no employees, this pension plan is made for those making a high income. The contribution limits are based on the income and have no preset limits than the IRA or 401(k) contributions, which remain the same despite income.

Another advantage to the defined benefit plan is that while its pre-tax income and is taxable upon withdrawal after 59 1/2, the contributions are tax-deductible. This can be a great advantage when filing yearly tax returns making your taxable income while running the business lower and lowering your taxes. Check out America's Best Bookkeepers

Should you get a pension plan?

After careful consideration of all your options regarding pension plans, it is a good idea to have one. These are all set up to not only help you save for inevitable retirement when you get older but to ensure you make the most of your money. The best thing to do is to explore the idea through a professional broker. They would be able to give advice, look at your financials and goals, and give you an idea of what plan would be best for you.

Ultimately, after you’re educated and have gone over all the options with a professional, it is up to you to decide what is best for your retirement future. No one else can make that decision for you that is so crucial to your future.


Many self-employed individuals assume they don’t have pension plan options and don’t save for retirement. These options are only a few that a self-employed person can contribute to. Getting with a professional financial planner will give you the best idea of all the options you have while having self-employment freedom.

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