3 Ways to Save for Retirement While Self-Employed


When it comes to building up funds for your retirement, working for someone else has its perks. Along with a steady, predictable paycheck, healthcare benefits, and paid time off, employers often offer 401(k) benefits that can significantly increase your yearly retirement savings. 

However, if you’re self-employed, you’re on your own for retirement savings, which means, unless you self-fund your 401(k), you’ll need alternative sources to build up the savings to live comfortably in retirement. But reaching your financial goals when it comes to retirement – while self-employed – isn’t impossible…it just takes a bit of strategy. Read on for our top tips and resources to ensure you reach your retirement savings goals, while keeping your self-employed business afloat!

Why Saving for Retirement Can Be Such a Challenge for the Self-Employed

Saving money is hard. When you’re self-employed, it’s even harder. That’s because the majority of cash a small business makes goes right back to the business. So, rather than investing any extra revenue in your personal future, you’re investing it in the future of your business.  

On top of using revenue to fund the business, those who are self-employed are required to fund their own health insurance, which averages about $484 a month for single participants, and up to $1230 a month for families. That’s a big chunk of cash that otherwise could go toward retirement savings for the average full time employee. 

While this can all feel quite daunting, don’t stress too much. There are resources available to help self-employed workers of any tax bracket save up toward a comfortable retirement.

Independent 401(k)

While most people think of large corporations when they hear “401(k),” they are available for the self-employed, too. An independent 401(k) is exactly what it sounds like: a variation of the 401(k) plan that many large employers offer their workers, but available only to small business owners and their spouses, so long as they work for the company.

An independent 401(k) has some tax benefits for the small business owner, and generally has the same rules as a typical employer 401(k) plan, however the retirement contribution limits are higher than traditional plans since the employer and employee are one in the same. 

Traditional, Roth or SEP IRA

A Roth IRA is a type of individual retirement account where contributors can build up their savings with pre-taxed dollars.

Self-employed workers often prefer to build up savings in a Traditional or Roth IRA because contributions are pre-taxed, so the savings put in reduces their overall taxable income before being withdrawn from a paycheck.

Similar to a ROTH IRA, an SEP IRA (Simplified Employee Pension Plan) enables employers – self-employed, included – to set aside money in retirement accounts for themselves and/or their employees. Most SEP IRAs allow for flexible annual contributions, which is key for small business owners whose cash flow varies by year.

Does a Roth IRA make sense for you and your financial goals? Find out here.

Defined Benefit Plan

For high-income self-employed workers, a defined-benefit plan can be the best option to fund retirement, which pays benefits in either fixed-monthly installments or via a lump-sum payment. Defined Benefit Plans provide an annuity benefit, typically a percentage of compensation, and, as participants in the plan work longer and their pay increases, their Defined Benefit grows.

For the self-employed, contributing to such a plan enables you to reduce taxes while working toward funding your retirement. In contrast to a Roth IRA, Defined Benefit Plans have much higher deductible limits – averaging $100,000 to $250,000+ per year! Additionally, married self-employed couples can potentially double the deduction.

Regardless of how you save, the most important thing to remember is to stay consistent, and the first step is to get started. If you’re unsure whether or not you’ll be able to reach your retirement goals, it’s best to talk with a licensed financial advisor to understand your options and develop a savings plan that works alongside both your personal and business financial goals.


The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, we advise you to consult with a licensed advisor.

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