6 Ways To Financially Plan For Retirement When You’re Self-Employed

When you don’t have an employer who’s providing you with a 401(k) and monthly contributions, it can be stressful planning your finances for retirement. Fortunately, there are options out that that will help you get headed in the right direction. Whether you’re looking for high-yield investments, low-risk savings accounts, or would like to have a steady stream of income after you’re done working, there’s something for you.

Keep reading below as we’ve outlined six ways that you can plan for your financial future when you’re self-employed.

Solo 401(k)

Depending on the size of your business and how it operates, you can save for your retirement by putting into a Solo 401(k), also known as a one-participant 401(k). The main difference between a traditional 401(k) plan and a solo is that a solo is, as it sounds, designed specifically for solo contributions. Employers who have no full-time employees other than themself and their spouse are eligible for a Solo 401(k) plan.

As of the beginning of 2021, the maximum allowable amount to contribute to your Solo 401(k) is $58,000. However, if you will be 50 years old by the end of the calendar year, you can utilize catch-up contributions up to $6,500 for the year. These contributions can be direct deposits or in the form of investments.

Traditional IRA

In contrast to a 401(k), an IRA, or Individual Retirement Account, is set up at a financial institution and managed by an individual. This allows you to enjoy tax-free growth over the lifetime of your savings. Furthermore, you can receive tax-deferred growth by contributing tax-free to your IRA and not pay any taxes on your contributions until you’re required to start withdrawing at 72 years old. Maximum allowable contributions to your IRA are capped at $6,000 per year, or $7,000 if you’re more than 50 years old.

Like a 401(k), IRA contributions are not strictly cash deposits but can also be investments. The risk of investing is that you can lose some or even all of your savings as they lose value.


A SEP IRA, or a Simplified Employee Pension, was created specially by Congress in 1978 for usage by small businesses. They can be used to contribute retirement benefits to both you as the business owner and your employees. While much of the structure and benefits of a SEP IRA are similar to that of a traditional IRA, a SEP IRA comes with a tax deduction that is nearly 10 times larger.

Roth IRA

A Roth IRA is very similar to a Traditional and SEP IRA, however, a Roth IRA allows you to leave money in your account for as long as you’re alive and you can continue to contribute after 70 and a half years old. Yearly contribution limits that are established for Traditional IRAs also apply to Roth IRAs.

Deciding which IRA is right for you can be confusing. Speak with a financial planner for assistance in choosing which is best for your financial future.

Reverse Mortgage

If you are worried about not having enough cash-on-hand with the savings account that you hav already established, consider a reverse mortgage. Individuals above 62 years old are eligible to take out a reverse mortgage against the equity of their home. If you or your spouse is living in the home as your primary residence, and maintaining property charges (taxes & insurance), there is no monthly payments or requirements to pay back the loan because the reverse mortgage is not due until the home is sold. When the home sells the reverse mortgage is then repaid and any remaining equity belongs to your estate/heirs.

Today many retirees are utilizing reverse mortgages to add additional cashflow and liquidity to their retirement years. Like a traditional mortgage, there are costs and interest rates associated. To learn more about current interest rates and APR, you can contact a reverse mortgage provider like All Reverse Mortgage (ARLO) who offers consumers upfront rates published each week on their website.

Passive Income

While self-employment is very much about the hustle, it might be time to consider having someone else take over your business. You can sell your business to a third party and negotiate that they keep you on the payroll. This allows you to continue to draw a paycheck without continuing to work.

There are more ways to generate passive income as retirement age approaches. This can be done by hiring someone else to run your business, owning a rental property, or even write an e-book. This kind of income is a great way to supplement any savings that you have already accumulated, especially since it requires very little extra effort on your part. Once it’s up and running, you even earn money while you sleep.

Written by Michael Lee.

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