retirement plans for self employed

If you’re self-employed or a small business owner, you can establish your own retirement savings plans and it is not difficult to set up the account.

Simplified employee pension individual retirement account plans

The account require little paperwork to set up. They allow you to put away 20 percent of your self-employment income (business revenue minus expenses) up to a maximum of $45,000 per year. Each year, you decide the amount you want to contribute — you have no minimums. Your contributions to a Simplified employee pension individual retirement account plans are deducted from your taxable income, As with other retirement plans, your money compounds without taxation until withdrawal.

Profit sharing plan

Profit sharing plans are another retirement savings option for the self-employed. the plans require a bit more paperwork to set up and administer thanemployee pension individual retirement account plans do. Profit sharing plan now have the same contribution limits as SEP-IRAs — 20 percent of your self-employment income (revenue less your expenses), up to a maximum of $45,000 per year.

Keogh plans allow business owners to maximize the contributions to which they’re entitled relative to employees in two ways: **Keogh plans allow vesting schedules, which require employees to remain with the company a number of years before they earn the right to their retirement account balances. If an employee leaves prior to being fully vested, the unvested balance reverts to the remaining plan participants. **Keogh plans allow for Social Security integration. Integration effectively enables high-income earners (usually the owners) to receive larger percentage contributions for their accounts than the less highly compensated employees. The logic behind this benefit is that Social Security taxes top out when you earn more than $97,500 . Social Security integration allows you to make up for this ceiling. .