Self-Employed Retirement Account Options

Before I finish my taxes, I’ll have to decide how I want to put some of my self-employment income away for retirement. I didn’t know there were so many options! In addition to the usual Traditional and Roth IRAs, I could also do use any of the following:

  • Simplified Employee Pension IRA (SEP-IRA)
  • Savings Incentive Match Plan for Employees IRA (SIMPLE IRA)
  • Keogh Profit-sharing Plan
  • Individual, or Solo 401k’s
  • Solo Roth 401k’s

I’m definitely going to explore all these options soon, but due to their deadlines the only one that I can actually use for 2005 income is the SEP-IRA, which allows me to open and fund it as late as the extended deadline for tax returns. Gotta love easy decisions.


  1. Artie McDonald says:

    If you are self employed, and you have no plans to have any additional employees in the near term, you should go with the SEP-IRA.

    The SEP-IRA has significantly less reporting requirements to the IRS by the trustee and in turn are significantly cheaper to have. IE, most brokerages charge standard IRA fees (any many offer them for free) for the SEP-IRA. However, the Keogh, the Simple, and the various 401k, will cost significantly more money to maintain and will not be worth it unless you have numerous employees or a lot of assets under management across all the plan participants.

    Additionally, with the SEP IRA you can determine the percentage of your profit you contribute to your SEP IRA on a year to year basis. In some of the other plans, you must determine the contribution percentage in advance of the year, and you limited in your ability to change those percentages and when those changes can take place. This may not sound like a big deal when you are self employed, but when and if you start acquiring employees, you may need the flexibility to decide after the year is over and you have your final numbers if your business can afford to distribute a portion of the profits to your employees. Of course, in either scenario, your contributions must be made in equal percentages to all eligible employees, the SE individual included.

    Also, as you mention, the SEP IRA (much like a regular IRA) can be set up and can take contributions for the prior year up until the due date of your return. The other plans must be established before and must have had contributions made before the end of the year.

    In fact, the one big strike against the SEP-IRA in the past was the contributions were limited to 15% in the past versus 25% for the other plans. But this difference was eliminated a few years ago and you can now contribute to the SEP under the same levels as you can the other plans.

  2. John Cho says:

    I would be interested if you could review any solo 401k options. Especially the ROTH solo 401k.

Speak Your Mind