As an employee, you’re stuck with whatever retirement plan your company provides. Sure, you can still make regular IRA contributions even with the lower limits. That’s not the case if you have your own business. If you’re self-employed or a small business owner there are several retirement plan choices beyond the basic IRA.
The best self-employed retirement plan will depend on your business plan, how much you want to contribute, how many employees you have or expect to have, and if you get income from a regular job.
Self-Employed Retirement Plans
SEP IRA
The Simplified Employee Pension plan or SEP IRA is one of the easiest retirement plans to set up. You can quickly open a SEP IRA through most brokers with very little paperwork.
The SEP IRA is ideal for anyone self-employed or a business with just a few employees. SEP IRAs allow you annual tax-deductible contributions of 20% of your self-employed earned income or 25% if you’re an employee of your own corporation, up to the limits for that year. If your profits fluctuate from year to year, the SEP IRA offers flexibility around the amount and timing of your contributions.
| Tax Year | Contribution Limits |
| 2016 | $53,000 |
| 2015 | $53,000 |
| 2014 | $52,000 |
Solo 401k
If you’re looking to save as much money as possible, the Solo 401k plan is for you. It allows you to contribute more money than a SEP IRA, as well as include your spouse in the plan, as long as they are an employee of the business. There are administrative costs and you can set up a Solo 401k with most brokerage firms.
The Solo 401k allows for a profit-sharing twist. Both the employee and the business can fund the Solo 401k. As an employee of your business you can contribute up to the annual 401k contribution limit. Anyone 50 years old or older can make a catch-up contribution as the table below shows.
In addition, your business can make annual tax-deductible contributions of 20% of your self-employed earned income or 25% if you’re an employee of your own corporation, up to the max allowed limit for the year.
| Tax Year | Limits |
Catch Up Contribution (Age 50+) | Max Limits w/ Employer Contribution |
| 2016 | $18,000 | $6,000 ($24,000 total) | $53,000 ($59,000 w/ catch up) |
| 2015 | $18,000 | $6,000 ($24,000 total) | $53,000 ($59,000 w/ catch up) |
| 2014 | $17,500 | $5,500 ($23,000 total) | $52,000 ($57,500 w/ catch up) |
If, on top of running your business, you have a regular job that offers a 401k, you can contribute to both the 401k and the Solo 401k. But the combined total can’t exceed the max limit for the year. Though, your business can still make contributions.
Simple IRA
Simple IRAs (Savings Incentive Match Plan for Employees) are ideal for small businesses with less than 100 employees. It’s easy to set up a Simple IRA with low administrative costs and no IRS reporting requirements.
The Simple IRA now allows employees to contribute up to $12,000 per year. The employer is required to make a matching contribution of up to 3% of each workers annual compensation. Catch up contributions are also allowed for employees who are at least 50 years old.
| Tax Year | Contribution Limits |
Catch Up Contribution (Age 50+) |
| 2016 | $12,500 | Additional $3,000 ($15,500 total) |
| 2015 | $12,500 | Additional $3,000 ($15,500 total) |
| 2014 | $12,000 | Additional $2,500 ($14,500 total) |
Keogh or Qualified Plans
Keogh or Qualified plans are more complex, costly, and have more stringent reporting requirements. Keogh plans are ideal if you have employees and need a more advanced retirement plan. These plans offer more possibilities including profit-sharing plans, defined benefit plans, or money purchase plans.
| Tax Year | Max Contribution |
| 2016 | $53,000 |
| 2015 | $53,000 |
| 2014 | $52,000 |
Which Plan is Best for You?
Which plan is best for you largely depends on your own situation and growth goals for your business. Consult a tax pro or speak with a financial advisor to review the best options for you and your business. In the meantime you can still contribute to an IRA, on top of the retirement plan you choose for yourself or small business.
