As we approach year-end, we should take a moment to consider retirement planning. I urge my self-employed readers to start a retirement plan if one is not already in place. Depending on your current circumstance, a cash balance pension plan (type of defined benefit plan) or a SIMPLE IRA (type of tax deferred employer-provided plan) might be suitable for you. I will discuss both of these (and other retirement vehicles) in future posts. For this entry, however, I'd like to focus on two popular and available options for the self-employed; the SEP IRA and the solo 401(k).
The SEP IRA
A Simplified Employee Pension Individual Retirement Arrangement (otherwise known as the SEP IRA), is typically adopted by business owners who seek to provide retirement benefits for the business owners and their employees.
The Solo 401(k)
A Solo 401(k), which is also known as a Self Employed or Individual 401(k), is a retirement savings vehicle designed specifically for employers with no full-time employees other than the business owners and their respective spouses. A key element of this particular type of plan is that it covers only the business owners and their spouses, thus not subjecting the 401(k) plan to complex ERISA (The Employee Retirement Income Security Act of 1974) rules.
So how do you choose between the two options?
Consider cash flow
Jason M. Gilbert, CPA/PFS, CFF
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Jason Gilbert is Managing Director of RGA Investment Advisors LLC. He has over 10 years of experience in investment advisory, including portfolio construction, financial strategy, and advanced planning for high-net worth and institutional clients. He maintains an extensive background in both forensic accounting and personal finance, and serves as a fiduciary and trusted partner to his long-standing clients.