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10 Retirement Planning Tips for the Self-Employed

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Maximize Your Tax Deductions

The three most common self-employment retirement plans all use pre-tax dollars, which lowers your taxable income. iStockphoto/Thinkstock
The three most common self-employment retirement plans all use pre-tax dollars, which lowers your taxable income. iStockphoto/Thinkstock

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One way to save more money for retirement is to give less of it back to Uncle Sam. Remember, all three of the most common self-employment retirement plans — solo 401(k), SEP IRA and SIMPLE IRA — are pretax plans. That means that every cent you save for retirement is deducted from your taxable income. In fact, contributions to retirement plans are the No. 1 tax deduction for self-employed business owners [source: TurboTax].

Pay attention to the contribution limits that we talked about earlier. If you have enough income to put the maximum away, you can personally deduct up to $51,000 with both an SEP IRA and a solo 401(k). But with an SEP, you can also deduct the contributions you make to employee accounts up to an additional $51,000 each. The limit for a SIMPLE plan is considerably lower at $12,000 for employees under 50, but if you have employees you can also deduct any contributions you make on their behalf.

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