Society of Certified Senior Advisors: Retirement Accounts for Small Business Owners

Whether you’re a solopreneur, a gig-worker, or the CEO of your own company, self-employed workers have options for retirement savings. The key is to pick an account and start investing in it.

If you’re one of the many CSAs who own their own business, you’ve doubtless grappled with the question of how to save for retirement. Building a nest egg isn’t as straightforward when you’re your own boss. There’s no easy “set it and forget it” option like signing up for your employer-sponsored 401(k) and calling it a day.

But the self-employed have good options for building wealth in retirement. And since we’re working with older adults, we know how important smart retirement planning is. For all of you younger CSA small business owners out there, here’s a rundown of today’s best retirement accounts for self-employed workers. Take a hint from your best-prepared clients, the ones who are feeling financially secure in retirement, and consider how you’re saving today.

If you employ yourself and others, you might consider a SEP IRA or a SIMPLE IRA. If it’s just you, consider a solo 401(k) or IRA. Of course, be sure to consult a financial adviser about the best options for you depending on your particular situation.

SEP IRAs

The SEP IRA, or simplified employee pension individual retirement account, is a flexible and easy-to-administer option for business owners with employees. SEP contributions are tax-deductible and non-exclusive with other IRA contributions. In 2024, business owners can contribute 25% or up to $69,000 of net earnings per year. That high contribution limit is a big pro of the SEP IRA option. These accounts are also easy to open at most banks, with low fees. A downside is that, as with other IRAs, there’s a penalty for withdrawing money early. Keep in mind that employers who open a SEP IRA and contribute to their own account must also contribute to eligible employees’ accounts.

SIMPLE IRAs

The Savings Incentive Match Plan for Employees, or SIMPLE, IRA is another option for business owners with fewer than 100 employees. Instead of starting a 401(k) for your business, you might choose the SIMPLE IRA for the easier and cheaper start-up. As the business owner, on the one hand, you can contribute to your own plan as an employer and an employee, allowing you to save more. On the other hand, you generally can’t have another retirement plan along with a SIMPLE IRA.

Solo 401(k)s

For solopreneurs and gig workers, a solo 401(k) may be a good fit. If you have your own employer identification number and no employees, you can open a solo 401(k), no matter your age. Like IRAs, solo 401(k)s can be either Traditional, with contributions made pre-tax, or Roth, with contributions made after-tax. The maximum contribution is $69,000 in 2024, with catch-up contributions of $7,500 allowable for those 50 and older. Now, that $69,000 maximum technically accounts for two contributions: $23,000 from you the employer, and $23,000 from you the employee. It’s important for gig workers to note that if you also have a 401(k) with an employer, the limits apply by person, not plan. Your total contribution limit would encompass both plans.

IRAs

Whether or not you’re self-employed, anyone can set up an IRA. As with the solo 401(k)s, with a Traditional IRA, you pay taxes later. With a Roth IRA, you pay taxes now. The annual contribution limit for IRAs will be $7,000 in 2024. That low limit is the downside, but the upside is that IRAs are very accessible: easy to set up, with many investment options to choose from.

To summarize, here are some considerations for business owners choosing a retirement account:

If you make a lot of money, you’re going to want the higher contribution limits offered by the solo 401(k), SEP IRA, or SIMPLE IRA.
As compared to the SEP and SIMPLE IRAs, solo 401(k)s and the Traditional and Roth IRAs tend to offer more flexible investment choices.
Consider whether you prefer tax deductions now (Traditional IRA, SEP IRA, Solo 401(k)) or tax-free withdrawals in retirement (Roth IRA, Solo 401(k) with Roth option).
Of all the plans, solo 401(k)s might require the most up-front work to set up.
The SEP and SIMPLE IRAs are only available to business owners with employees.

CSAs own businesses large and small. We’re solopreneurs serving older adults as wellness coaches, financial advisers, counselors, interior designers, and more. And we’ve started AgeTech companies, transportation agencies, living communities, and other businesses that employ many professionals. Whatever your field, as a self-employed person, be sure to take the same care planning for your own retirement as you do caring for your older clients during theirs.

This article is not intended to be a substitute for professional financial advice from a qualified financial advisor.