Being self-employed means every decision can pivot the future of your business; Planning for retirement should occupy a prime spot on your agenda. Retirement planning for business owners and independent contractors comes with its unique set of challenges and opportunities. Munroe Morrow Wealth Management understands these intricacies and is here to help. 

 

Comparing Individual Retirement Accounts (IRAs) for Business Owners and the Self-Employed

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Leveraging Simplified Employee Pension IRA (SEP IRA) for Higher Contributions

For self-employed individuals and small business owners looking to save more, the SEP IRA offers a generous contribution limit based on a percentage of earnings.

2024 Contribution Limits:
  • Up to 25% of adjusted net earnings, with a cap at $69,000.
Pros:
  • High contribution limits and flexibility
  • Tax benefits similar to Traditional IRAs
  • Straightforward account setup
Cons:
  • Required uniform contributions for all eligible employees
  • Can be limiting if business revenues decline.

Simplifying Retirement Savings with Savings Incentive Match Plan for Employees (SIMPLE IRA)

Designed for businesses with 100 or fewer employees, the SIMPLE IRA facilitates both employer and employee contributions with minimal administrative burden.

2024 Contribution Limits:
  • Employee: Up to $16,000 or 100% of salary.
  • Employer: Mandatory contributions, either 2% of salary or a dollar-for-dollar match up to 3%.
Pros:
  • Easy to manage with minimal paperwork
  • Tax-deductible contributions
Cons:
  • Lower contribution limits compared to other plans
  • Mandatory employer contributions

 

Solo 401(k): Tailored Retirement Plan for Self-Employed Individuals

A Solo 401(k) is a retirement savings plan designed for self-employed professionals or business owners without employees, though it allows participation from spouses working within the business. As participants, you’ll assume dual roles: both employer and employee.

 

2024 Contribution Limits:

  • Employee: Up to $23,000, or 100% of earned compensation, whichever is less. Individuals aged 50 or older can contribute an additional $7,500 as a catch-up amount.
  • Employer: An additional profit-sharing contribution up to 25% of compensation, allowing a combined maximum of $69,000. Those over 50 can contribute an additional $7,500 annually.

Pros:

  • Contributions are tax-deductible, reducing current taxable income.
  • Offers the potential to save significantly towards retirement while reducing current tax liabilities.
  • Provides flexibility in investment choices, allowing you to tailor the plan to your financial goals.

Cons:

  • The plan requires initial paperwork and ongoing administrative management.
  • Requires filing an IRS Form 5500 if plan assets exceed $250,000.

 

Tailoring Your Retirement Strategy with Munroe Morrow

Choosing the right retirement plan is pivotal in securing your financial future. Each plan offers unique benefits tailored to different business structures and income levels. Munroe Morrow Wealth Management specializes in crafting personalized retirement strategies that align with your business goals and financial aspirations.

Whether you’re drawn to the tax efficiency of a Traditional or Roth IRA, the higher contribution limits of a SEP IRA, or the simplicity of a SIMPLE IRA, we’re here to guide you through the intricacies of each option.

Don’t leave your retirement to chance. Schedule a free consultation with Munroe Morrow Wealth Management today, and let us help you build a retirement plan that grows with your business. Your future self will thank you.

Small Business Owners & Entrepreneurs

 

The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.

 

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

 

All  investing includes risks, including fluctuating prices and loss of principal.​

 

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FAQs

Can I have both a Traditional IRA and a Roth IRA?
  • Yes, you can contribute to both, but the total contribution must not exceed the annual limit.
Are SEP IRA contributions mandatory every year?
  • While SEP IRAs offer flexibility, if you choose to contribute in a given year, you must contribute for all eligible employees, including yourself.
Can I switch from a SIMPLE IRA to a SEP IRA?
  • Yes, but there are specific rules regarding the timing and contributions that need to be followed.
How does a Roth IRA offer tax-free income?
  • Contributions to a Roth IRA are made with after-tax dollars, so the money you withdraw during retirement is not subject to federal income taxes.
What’s the best retirement plan for a sole proprietor?
  • The best plan depends on your individual financial situation, income, and retirement goals. A consultation with a financial advisor can help determine the most suitable option.