What Is a Self-Employed Retirement Plan?

A self-employed retirement plan is a tax-deferred retirement savings program for self-employed individuals. In the past, the term "Keogh plan" or "H.R. 10 plan" was used to distinguish a retirement plan established by a self-employed individual from a plan established by a corporation or other entity. However, self-employed retirement plans are now generally referred to by the name that is used for the particular type of plan, such as SEP IRA, SIMPLE IRA, SIMPLE 401(k), or self-employed 401(k) (also known as a solo 401(k) or an individual 401(k)).

Self-employed plans can be established by any individual who is self-employed on a part-time or full-time basis, as well as by sole proprietorships and partnerships (who are considered “employees” for the purpose of participating in these plans).

Unlike IRAs, which limit tax-deductible contributions to $7,000 per year in 2024 (up from $6,500 in 2023), self-employed plans allow you to save as much as $69,000 of your net self-employment income in 2024 (up from $66,000 in 2023), depending on the type of self-employed plan you adopt.

Contributions to a self-employed plan may be tax deductible up to certain limits. These contributions, along with any gains made on the plan investments, will accumulate tax deferred until you withdraw them.

Withdrawal rules generally mirror those of other qualified retirement plans. Distributions are taxed as ordinary income and may be subject to 10% federal tax penalty if taken prior to age 59½, unless an exception applies. (Special rules apply to Roth accounts and SIMPLE IRAs.) Self-employed plans can typically be rolled over to another qualified retirement plan or to an IRA. Annual minimum distributions are required after the age of 73, for individuals who reach age 72 after December 31, 2022. If you attained age 72 in 2022 or earlier, you are already required to take annual RMDs. The RMD age will rise to 75 in 2033.  

You can open a self-employed plan account through banks, brokerage houses, insurance companies, mutual fund companies, and credit unions. Although the federal government sets no minimum opening balance, most institutions set their own, usually between $250 and $1,000.

The deadlines for setting up a self-employed plan and for making contributions vary by plan type. 

Each tax year, you may be required to fill out Form 5500, depending on the type of plan you choose. You may need the assistance of an accountant or tax advisor, incurring extra costs.

If you earn self-employment income, a self-employed plan could be a valuable addition to your retirement strategy. And the potential payoff — a comfortable retirement — may far outweigh any extra costs or paperwork.

 

The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the ­purpose of ­avoiding any ­federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the ­purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2024 Broadridge Financial Solutions, Inc.

Solon Financial Group
6200 SOM Center Rd. B21 Solon, OH 44139
Phone: (440) 519-1838, (866) 517-7302 Fax: (440) 519-1878

Securities and advisory services offered through Cetera Advisors LLC, member FINRA, SIPC. Cetera is under separate ownership from any other named entity.

6200 SOM Center Rd, B21, Solon, OH 44139

Securities and advisory services offered through Registered Representatives of Cetera Advisors LLC (doing insurance business in CA as CFGA Insurance Agency LLC), member FINRA/SIPC, a broker/dealer and a Registered Investment Advisor.  Cetera is under separate ownership from any other named entity.

Individuals affiliated with this broker/dealer firm are either Registered Representatives who offer only brokerage services and receive transaction-based compensation (commissions), Investment Adviser Representatives who offer only investment advisory services and receive fees based on assets, or both Registered Representatives and Investment Adviser Representatives, who can offer both types of services.

This site is published for residents of the United States only. Registered Representatives of Cetera Advisors LLC may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Not all of the products and services referenced on this site may be available in every state and through every advisor listed. For additional information please contact the advisor(s) listed on the site, visit the Cetera Advisors LLC site at www.ceteraadvisors.com

 

The registered representative(s) and/or investment adviser representative(s) listed on this website are licensed and registered in the following states:

We are licensed to sell Insurance Products in OH,PA.

[ Online Privacy Policy | Important Disclosures and Form CRS | Business Continuity | Privacy Promise | Order Routing Disclosure | Cetera Advisors ]