10 Retirement Planning Tips for the Self-Employed

Know Your Options
The solo 401(K) is a good option for a husband-and-wife team of business owners. iStockphoto/Thinkstock

There are a number of self-employment retirement plans out there; the three most popular include:

The Simplified Employee Pension IRA (SEP IRA) is the easiest to set up and incurs the lowest account management fees from banks and mutual funds. It's perfect for one-person businesses but can also be used if you have employees. Only the employer makes contributions. One of the best features is that there are no required minimum contributions and you can wait until April 15 to pay in. That way, you can put away more when business is good and less when times are tight.

Also called a "one-participant 401(k)," the Solo 401(k) is for a single business owner with no employees or a business owner and a spouse [source: IRS]. It works exactly like a conventional 401(k), with one major difference. In a traditional 401(k) plan, the employer matches a certain percentage of the employee's pretax contributions. Since solo businesses owners are both employer and employee, the IRS allows them to make extra contributions up to 25 percent of the business' earnings. Solo 401(k)s are harder to find, cost more to maintain and incur more rules than SEP IRAs.

The Savings Incentive Match Plan for Employees (SIMPLE) requires the employer to match each employee's contributions up to 3 percent of salary. Even if the employee doesn't make his or her own contributions, the employer has to contribute a fixed 2 percent of salary [source: Hill]. These plans are less attractive because they carry hefty annual fees and IRS penalties if employers don't keep up with contributions.

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