“If you want to set up, fill out an IRS form 5305-SEP Simplified Employee Pension-Individual Retirement Account Contribution Agreement.” “The money you invest is pre-tax,” she adds. Known as SEP IRA’s, this retirement savings plan for the self-employed allows you to contribute up to 25% of your net earnings, clarifies Kayla Sloan in a previous Due article. Like in real estate, you could make investments or play it a little safer with a Simplified Employee Pension. Just because you’re self-employed doesn’t mean that a solo 401(k) is your only retirement option. That might be an issue if you’re barely holding your head above water. “That’s totally tax-free, both the amount you paid in and the returns the account earned,” adds Segal.Īnother consideration with a Roth 401(k) is that your paychecks won’t be as much because you are paying taxes now. That also means that withdraws are also free.

Because these are funded with after-tax dollars, you’ve forked over your hard-earned cash to the IRS. “Keep in mind, though, that most retirees are in a lower tax bracket than they were during their working years.” The additional tax burden might erase any tax benefits received previously,” adds Segal. ”The downside is that when you are ready to withdraw your money, the tax rate could be higher than when you initially invested. As Troy Segal explains for Investopedia explains, with this plan, “you invest your dollars pre-tax, effectively claiming a tax break during your working years.” That means that when you retire, “you pay income taxes on the funds you withdraw-including the money your investments have earned over the years.” Still interested? Awesome because when it comes to a solo 401(k) retirement plan, you typically have two options. However, to play it safe, double-check with a tax professional.Īnd, in case you’re curious, there are no age or income restrictions when it comes to a solo 401(k). The second is that if you’re earning money from a side hustle, but just so happen to have a full-time job as well. And, don’t try to pull a quick one on the IRS as they are very strict about this requirement. Sole proprietors, independent contractors, and freelancers all quality - just as long as they don’t employ anyone else. Specifically, business owners who only employee me, myself, and I. Still interested? Awesome because when it comes to a solo 401(k) retirement plan, you typically have two options.Īs you might have surmised, a solo 401(k) is a retirement plan designed, well, for individuals.

Max 401k contribution 2021