Retirement Plans For the Self-Employed

I am self-employed and I thought other self-employed people might like this little spreadsheet I created. It breaks things down into regular lingo verses financial talk. I really like how much info it gives you and the categories each one are in.

I personally have a SEP IRA. I use Meryl Edge for my investments and I love their customer service. I am the type of person to question everything and every time I have had a question they are very prompt in returning my emails and very concise when explaining things to me. I am so happy with my choice.

 SEP IRASolo 401(k)/Solo Roth 401 (k)SIMPLE IRAPayroll Deduction IRAProfit Sharing
Best forSelf-employed people; employers with one or more employeesSelf-employed people with no employees other than a spouseSelf-employed people; businesses with up to 100 employeesSelf-employed people; employers with one or more employeesSelf-employed people; employers with one or more employees
Funded byEmployer; individual, if self-employedSelf or qualified spouseEmployee deferrals; employer contributionsEmployee, via payroll deductionEmployers, at their discretion; might be linked with employer’s workplace retirement plan
2018/2019 EMPLOYEE contribution limitsContributions for employees made solely by employer (or sole proprietor); limit of 25% of net self-employment income, to a maximum of $56,000 Lesser of $19,000 or $25,000 for those age 50 and older and 100% of earned income$13,000; $16,000 for those age 50 or older Based on employee’s IRA eligibility; maximum of $6,000; $7,000 for those age 50 and olderBased on employee’s IRA eligibility; maximum of $6,000, or $7,000 for those age 50 or older
2018/2019 EMPLOYER contributionsThe lesser of up to 25% of compensation or $56,000 As both an employee (of yourself) and employer, up to $56,000, or $62,000 with catchup contribution Mandatory matching contribution of up to 3% of an employee’s compensation or fixed contribution of 2%N/AThe lesser of up to 25% of employee compensation or $56,000
Taxes on contributions and earningsContributions and investment income are tax deferred; earnings grow tax-deferredContributions and investment income in a traditional Solo 401(k) are tax deferred; contributions to a Solo Roth 401(k) are taxable; earnings grow tax-freeContributions and investment income are tax-deferred; earnings grow tax-deferredContributions to a traditional IRA might be deductible; contributions to a Roth are taxable; earnings grow tax-deferredNo taxes on contributions; earnings grow tax-deferred
Taxes on withdrawals after age 59 1/2Taxed at ordinary ratesTraditional Solo 401(k) withdrawals are taxed at ordinary rates; Solo Roth 401(k) withdrawals aren’t taxedTaxed at ordinary ratesTraditional withdrawals are taxed at ordinary rates; Roth withdrawals aren’t taxedTaxed at ordinary rates
ProsSimpler for employers to set up than Solo 401(k)s; employers get tax deductions on contributionsAllows small business owners to make both employee and employer contributions for themselves; has higher contribution limits than some other plansEmployees can contribute up to 100% of compensation, up to limitEasy to set up and maintain; no minimum employee coverage requirementsEmployee might be able to borrow penalty-free from vested balance before retirement age (although borrowed amounts are subject to income tax)
ConsLower contribution limits for sole proprietor than a Solo 401(k); doesn’t allow catchup contributions; employer contributions are discretionaryMore complicated to set up than a SEP IRA; only allows withdrawals before age 59 1/2 for disability or plan termination25% penalty on distributions made before age 59 1/2 and within the first two years of the plan; no loans allowedEmployees subject to Roth and traditional IRA eligibility requirementsVesting period is generally required; no diversification, tied to employer earnings
Good to knowThere is a different calculation to determine allowable SEP contributions if you’re both the employer and employee   Employer contributions might be subject to vesting termsDistribution rules penalize rollovers to another account within the first two years of plan ownership; a SEP IRA or 401(k) might be better for the self-employedThe employer chooses the providerContributions are at employer’s discretion and can vary based on salary and job level

Wants vs Needs

With any budget, you have your categories that label what your spending your money on. Within those categories you’ll be able to see your areas of opportunity. I have an activity that I have all of my clients do at the very beginning of working together. This activity shows my clients how much they are spending just on their WANTS.

You need three months worth of bank statements. You will then highlight all of the “wants” you purchased. Add up all of those “wants.” The total is how much you spent on just things you WANT. This is to check in with yourself.

How much did you spend?

Does spending that money on random stuff you don’t really need make you feel a certain type of way? Would you rather spend it on something more responsible?

Are you in debt? Could you have paid off some debt with the amount you spent on “wants?”

Do you have short term or long term goals?

Do you have a retirement fund?

Do you like having “things” instead of going on trips for an experience seeing the world?

These questions are to help you see the difference between wants vs needs. Needs should be a priority and if they aren’t you need more discipline in your life. Money management is a mindset. If you are not in the proper money mindset, you can kiss all your extra money goodbye. Which ever type of person you are, whether you’re a money hoarder or an emotional spender, you need to have a balance with your finances. You can’t keep all the money in an account somewhere untouched and expect to have it grow or make you less stressed. You also can’t go around making it rain either. Balance, discipline, and consistency is key in financial wellness.

If you are in need of some financial advice check out my Taxes, Bookkeeping & Financial Wellness Facebook Group!

Testimonials

Lunden does business in a lot of different countries and lives abroad in Austria. She needed things done correctly and on time. She was really overwhelmed by taxes and bookkeeping being solely self employed. Lunden went from struggling with her foreign earned income taxes and getting her bookkeeping sorted out to knowing exactly what to expect and which category to put all of her expenses in. She spends less than an hour getting her taxes organized at the end of the year. Lunden feels SIGNIFICANTLY less stressed knowing her financial wellness is achieved.

“Jessica Durbin has been doing my taxes for the past few years. Jessica is friendly and personable during the daunting experience of processing our taxes. Jessica is knowledgeable, honest and extremely thorough and she always had your best interests in mind. I look forward to meeting with her each year as she smiles and laughs and clearly enjoys what she does! I highly recommend making an appointment with Jessica Durbin to make your next tax experience the best it can possibly be.”

“We have been loyal customers to Jessica for many years. Jessica does an amazing job and has such great customer service. She always answers all our tax questions. You will not be disappointed.”

“We cannot recommend Jessica enough! She does everything she can to make sure that we get the best possible refund. She is always quick to respond and available to answer any tax or bookkeeping questions that we may have. She explains things thoroughly and helps put our tax worries at ease.” 

“Jessica is so helpful with any of our tax needs. She goes above and beyond, not only was she professional, she has a great personality that makes you feel comfortable and someone you can relate to. We are so thankful to have her as our tax expert and would recommend her 100% to anyone!”

“In our professional careers, we have interacted with many individuals in many different areas of expertise and service. None have made such a positive impression on us as Jessica Durbin. Jessica’s knowledge is comforting and left us with a relaxing feeling that our taxes were done correctly and to the degree that provided us with our maximum benefits. Jessica not only has the knowledge you want in a true professional but, also exhibits the personality and customer service that makes you feel like you aren’t just a customer, but you are a part of her inner professional family. When you choose to use Jessica, you are getting an individual who will always go the extra mile for you and works diligently to make sure your taxes are done correctly, quickly, and with the maximum benefits to which you are entitled. It is with no reservation that we endorse and support Jessica Durbin as our tax expert and recommend you to do the same.”

“Jessica was highly recommended to us a couple of years ago and we have been seeing her ever since. She is very professional and always makes sure to keep us informed of new changes. Thanks to Jessica we have been well prepared and organized with our finances and filing our taxes. We will never use anyone else again! Thank you so much Jessica. You truly are the best in the business!”

“We are grateful for having used Durbin Bookkeeping. All of our questions were always answered and were left at ease with the process. It is beyond assuring to trust that we are in good hands.”

“I am so grateful that I found Jessica Durbin as a tax preparer and financial advisor! She has done my taxes for a few years now and it is such a stress relief. As a young single adult it is extremely hard to keep track of my finances and live on a steady yet manageable income! Jessica has given me an extreme amount of knowledge in all of the chaos of trying to live a balance life. Thank you for all of your help Jessica and I look forward to being a returning customer for years to come!”

“Jessica Durbin keeps up to date on all the frequent law changes and counts all the little things that most tax preparers do not. She believes that every penny counts despite the time it takes her and thoroughly reads up on which method of filing is best for each individual customer. Thanks to her, my husband and I filed together for the first time and she eased my stress with her knowledge of filing taxes in the midst of a name change. Every year I throw her a curve ball and she catches it! If you have a shared dependent, are getting married, being self employed, receiving food stamps, and even being under prepared, you can trust her. Thank you Jessica!”