How do you choose a retirement plan? As a small business owner or self-employed individual, you may not realize how many outstanding options you have. Below, we’ll discuss a few retirement savings options, including one plan that may allow you to shelter your first $26,000 of income from taxes!
Should I Open an Individual 401(k)?
Individual 401(k)s are a perfect option if you are self-employed. These plans can only include you and your spouse. Individual 401(k)s allow you as a self-employed individual to contribute up to $57,000 (or $63,500 if over 50 years old) in 2020. This total is comprised of an employee contribution and employer contribution. The maximum employee contribution for 2020 is $19,500 for individuals under 50 and $26,000 for individuals over 50. The maximum employer contribution for 2020 is 20% of net self-employment income up to the total limit of $37,500. So, if you own a business with your spouse and are over 50, you may be able to shelter up to $127,000 of income from taxes!
Should I Open a SEP IRA?
SEP IRAs are an excellent option if you are self-employed or own a small businesses with few employees. SEP IRAs allow you to contribute the lesser of 25% of your employee’s compensation for the year or $57,000 as of 2020. Employees may not contribute to SEP IRAs.
Should I Open a SIMPLE IRA?
SIMPLE IRAs are fantastic for companies with less than 100 employees and no other employer-sponsored retirement plan in place.
SIMPLE IRAs are also comprised of an employee contribution and an employer contribution. The maximum employee contribution for 2020 is $13,500 for individuals under 50 and $16,500 for individuals over 50. The maximum employer contribution for 2020 is either a match of the employee’s SIMPLE contribution up to 3% of the employee’s compensation or a non-elective contribution to all eligible employees up to 2% of each employee’s compensation. For the non-elective contribution calculation, employee compensation is limited to $285,000.
Are you trying to decide which plan is best for you? Let’s talk. Shoreline can help you set up the perfect retirement plan.
If you know someone who might be interested in this article, please use our social buttons to the right to print, share, or email this blog post.
The information contained on this Website is not intended as, and shall not be understood or construed as, financial, tax, or professional advice. The information contained on this Website is not a substitute for any advice from a professional who is aware of the facts and circumstances of your individual situation.
We have done our best to ensure that the information provided on this Website and the resources available for download are accurate. Regardless of anything to the contrary, nothing available on or through this Website should be understood as a recommendation. Neither the Company nor any of its employees or owners shall be held liable or responsible for any errors or omissions on this website.