Self-employment has a lot of perks, but one drawback is the lack of a company-sponsored retirement plan. If you work for yourself, you can explore these other options to prepare for retirement:

Individual Retirement Account (IRA)
With a traditional IRA, contributions are tax-deductible, but withdrawals are taxed in retirement. Contributions to a Roth IRA are not tax-deductible, but withdrawals arent taxed. A Roth is a better option if you dont make much money now and expect to be in a higher tax bracket when you retire. Both types of IRAs have contribution limits.

Solo 401(k)
A solo 401(k) is designed for a self-employed individual with no employees (except perhaps a spouse). The saver is considered both employer and employee, so the contribution limits are much higher than they are for an IRA. Limits depend on income and age. A solo 401(k) is a good option if you want to save a lot of money for retirement or if your annual income fluctuates. With a traditional solo 401(k), money is taxed when its withdrawn. With a solo Roth 401(k), contributions are taxed, but withdrawals are not.

Simplified Employee Pension (SEP) IRA
Contribution limits for a SEP IRA depend on compensation or net self-employment income. Contributions are tax-deductible, and distributions are taxed in retirement.

If you open a SEP IRA, youll be required to set up an account for each eligible employee and to contribute a percentage of each employees salary equal to the percentage of your own salary you contribute. That can be expensive if you have a lot of employees or if you want to contribute a large percentage of your own income. This option is best for someone with few or no employees.

Savings Incentive Match Plan for Employees (SIMPLE) IRA
A SIMPLE IRA is designed for companies with up to 100 employees. With this option, you can deduct your contributions and pay taxes on withdrawals later. Contributions to employee accounts can be deducted as a business expense. Employees can also contribute, and the company may be required to make matching contributions in some cases.

Defined Benefit Plan
A defined benefit plan is a pension plan for a self-employed individual with few or no employees. This is for someone with a high income who wants to save a lot for retirement each year. The contribution limit is based on the amount you want to withdraw when you retire, your current age and anticipated returns on investments. Contributions are tax-deductible, and withdrawals are taxed in retirement. If you have eligible employees, youll have to make contributions to their accounts, which can increase the plans already high administrative fees.

Investigate Retirement Options
Saving for retirement is particularly important for self-employed professionals. Several options are available to make it easy for people in a variety of circumstances to plan for the future. Discuss your current circumstances, goals and options with a financial advisor.

This article is intended for informational purposes only and should not be construed as professional or legal advice.

Published with permission from RISMedia.