“Own a business? Save more for retirement. Popular plans for the self-employed include the solo 401(k), the SEP IRA and a SIMPLE IRA.”
Self-employed individuals can establish a “solo 401(k),” which is a special type of retirement plan for someone who’s self-employed or a business owner with no employees (other than a spouse). A person can fund it with about 20% of net profits when times are good; you can skip contributions during lean years.
As Kiplinger says in the article, “Retirement Savings Plans for the Self-Employed,” whether you’re running a side business or you are entirely self-employed, you have options when it comes to saving for retirement.
You can select from several retirement plans that let you make pretax contributions that grow tax-deferred, until you withdraw the money. If you choose to make after-tax Roth contributions to your solo 401(k), withdrawals in retirement will be tax-free.
There are also some self-employed plans that let you contribute above the limits for a traditional or a Roth IRA. With a solo 401(k), for example, you can put in money both as employee and as employer.
Therefore, you could potentially contribute as much as $55,000 of your self-employment income. Some of the common plans for the self-employed are the solo 401(k), the SEP (simplified employee pension) IRA, and a SIMPLE (Savings Incentive Match Plan for Employees) IRA.
The new tax law will have an impact on retirement plans. It may affect how you may save for retirement. For example, sole proprietors, partnerships, and other pass-through entities can now deduct 20% of their profits from their taxable income.
However, the 20% pass-through deduction will be applied to the lesser of your qualified business income or taxable income minus any capital gains.
Reference: Kiplinger (February 21, 2018) “Retirement Savings Plans for the Self-Employed”