How To Invest If You Are Self-Employed or Your Employer Doesn’t Offer a 401(k)
8/22/23
One of most common financial vehicles to build your retirement savings is a 401(k), which many times offers a match. For example — you deposit 3% of your salary and your employer also deposits 3%. However, if you are self-employed or your employer doesn’t offer a 401(k) match, you may be wondering how to invest. Fortunately, there are alternative options.
No matter your income, you can contribute $6,500 per year to either a Traditional IRA, Roth IRA, or a combination of the two. These both provide tax-deferred growth and are extremely helpful investment vehicles. Even as a high-income earner, you can still write off Traditional IRA contributions if you are not covered by an employer sponsored plan. See this article for details on the differences between the two.
If you are self-employed or own a company, you also have the option to start an employer sponsored plan. Here are my recommended types of employer sponsored plans for small businesses, from most preferred to least preferred:
SEP IRA
Tax deductible contributions up to 25% of your income (maximum is $66k).
Great for solo-owned, one employee LLCs.
Extremely low administrative costs.
SIMPLE IRA
Tax-deductible contributions up to $15,500/year.
Great for small businesses with less than 100 employees.
Must match 3% of employees’ contributions or offer a 2% nonelective contribution.
Extremely low administrative costs.
401(k)
Tax deductible contributions up to $22,500.
Able to serve small businesses but are better for larger businesses or businesses with employees that prioritize a higher maximum contribution amount.
*All values listed above are as of 2023. Please contact me to discuss your situation in more detail. This is a brief overview of employer sponsored plans and is not meant to provide every detail about each plan. I never charge for meetings or advice, I only get paid directly from your account(s) that I manage.