What Are the Different Types of Self-Employed Retirement Plans?

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  • Written By: M. Walker
  • Edited By: Allegra J. Lingo
  • Last Modified Date: 19 January 2020
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The four main types of self-employed retirement plans in the US are Simplified Employee Pension (SEP) plans, Savings Incentive Match Plan for Employees (SIMPLE) plans, solo or individual 401(k) plans, and Keogh plans. While all contributions are income tax deductible, these self-employed retirement plans all have different contribution limits, deadlines, and other stipulations. Self-employed workers can generally set up the plans by themselves, but Keogh plans usually require the help of a financial professional, especially when creating defined benefit plans. Self-employed individuals in other countries should consult their governmental policies to see the different ways to start retirement accounts because the laws and procedures will vary for each country.

SEP Individual Retirement Account (IRA) plans are some of the simplest self-employed retirement plans to establish and maintain. Workers can contribute up to 20% of their net profit up to a maximum limit of $49,000 US Dollars (USD) for the 2011 year. The normal deadline is April 15, although an October 15 deadline is available to those who file for an extension.


SIMPLE IRA plans are for self-employed individuals who want to establish retirement accounts for 100 or fewer employees. Both the employees and the employer can make contributions to the accounts and defer taxes that would apply to the accounts’ gains. Employers can contribute a fixed rate of 2% of an employee's paychecks per year or a variable rate that matches employee contributions to up to 3% per year. The contribution limit for employees for the 2011 year is $11,500 USD. Employees can take SIMPLE IRA savings with them if they leave a business, but they cannot borrow against the accounts as with traditional 401(k) retirement accounts.

Created in 2001, solo 401(k) plans are self-employed retirement plans that function like regular 401(k) accounts, allowing individuals to make tax-deductible contributions that grow tax deferred. The maximum contribution for the 2011 year is $49,000 USD or $54,000 USD for workers older than age 50. Workers who are both regularly employed and self-employed can have both traditional and self-employed retirement plans.

Keogh plans can allow employers to set up either defined contribution or defined benefit plans for themselves and their employees. Defined contributions fall are either money purchase plans, which require a contribution of 10% of net profits per year, and profit sharing plans, which do not require a set amount to be contributed yearly. In contrast, defined benefit plans give employees a fixed dollar amount per year upon retirement, and they generally require professional help to calculate the correct amounts. Factors such as life expectancy and estimated future profits help determine this dollar amount.


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