How to Plan For Retirement When You’re Self Employed

When you're self-employed, you have to plan for retirement yourself. Make sure you have a good plan in place using these suggestions.Many people are choosing self-employment over working at a traditional 9-5 job these days and I don’t blame them. About a year ago, I left my 9-5 to become a full-time blogger and freelance writer and it’s been great.

I’m much happier with the work I’m doing now. But, it’s not all unicorns and rainbows. I chose a line of work that would provide me with a pretty unstable income and more financial responsibilities.

I’m now responsible for paying for my own medical care, keeping my income afloat when I take time off, and planning for retirement. If you are self-employed and love the work you do, you may not even be thinking about retirement now because you’re so content.

Even if you plan on working until you’re 80, you should still prioritize planning for retirement. Make contributions anyway, because you never know what the future holds. You may change your mind and decide you want to retire sooner. Or one day you may realize that you won’t be able to continue working.

Even if that’s not the case, it’s best to start thinking about and preparing for retirement as early as possible and you don’t even have to make it your main priority. So, how can you do this? When you’re self-employed, you won’t have access to benefits like an employer-sponsored 401(k) plan or a pension.

However, there are many other effective ways to start saving for retirement.

Roth IRA or Traditional IRA

An IRA stands for Individual Retirement Account. It’s a great option to use because anyone can open an account and start saving for retirement. The only difference is that with a traditional IRA, your contributions are tax deductible. This means you have to pay taxes on your withdrawals during retirement.

With a Roth IRA, you contribute taxed dollars so your earnings and withdrawals are tax-free during retirement.

Anyone with earned income who is younger than 70½ can contribute to a Traditional IRA. With a Roth IRA, there are no age restrictions for contributors but there are income requirements.

In 2017, single tax filers, must have modified adjusted gross incomes of less than $133,000 in order to contribute. Joint filers must have an annual income of less than $196,000 in order to contribute.

The maximum contribution limit per year for both a Roth and Traditional IRA is $5,500 or $6,500 if you are over the age of 50 or older. You can start making withdrawals penalty-free once you turn 59 1/2.


This is another type of IRA that is designed specifically for self-employed. This is a tax-deferred account which means that your contributions won’t be taxed until you start making withdrawals from the account.

With a SEP IRA, you can contribute much more than you can with a Roth or Traditional IRA. Each year you can save up to 25% of your earnings or $52,000 (which ever is less).

If you can afford it, contributing to a SEP IRA and one of the ones mentioned above would be a great strategy. Even if you can’t afford to max out your accounts each year, just start by contributing what you can and being consistent.

Solo 401(k)

Another option you can consider is a Solo 401(k). This is ideal for sole proprietors and owners of an S Corporation or a C Corporation who don’t have any employees (other than your spouse). They are a bit more complex when compared to IRA. But, you can contribute up to $60,000 per year and choose from different options like using pre-tax dollars or being taxed later.

If you’re interested in setting up a Solo 401(k) plan, I’d highly recommend you speak to a financial professional. They can guide you through the process and advise you of all the rules and requirements.

You might want to build your savings before you invest when you're self employed. Click To Tweet

How to Save For Retirement With a Fluctuating Income

While it would be great to set a fixed amount of money aside each month for retirement, you may not find that so easy to do if you’re self-employed and have a variable income.

It may be better to commit to setting aside a percentage of your income each month like 10% for example. That way, no matter what you earn, you won’t feel burdened by your retirement contribution if you have a lower income month.

It would also be wise to consider setting up automatic transfers to go through at the beginning of the month or whenever you get paid. That way, you can get your retirement savings goal out of the way before proceeding with your other spending for the month.

Before you start saving for retirement, you might want to beef up your emergency savings and checking account buffer as well.

I know when I first started working for myself, I had much more peace of mind knowing that I had extra money saved up if I lost clients and my income dropped significantly. You don’t want to have to put saving for retirement completely on the back burner. So, if your income does dip for a month or two, having a nice-sized cash cushion can help you stay on track.

You could also get started by investing with Ally Invest. There’s no minimum account balance or trade activity required. Plus, it only costs $4.95 per trade!

Remember, It Takes Time

Remember that preparing for retirement doesn’t happen overnight and it will take several years to build up your nest egg. Focus on choosing a retirement planning option that will meet your needs and be consistent with contributions.

Don’t feel discouraged if you have to wait a few months until you can build your self-employment income. Build your savings stash up first and set realistic expectations. Recognize that your income will fluctuate, which may cause your contributions to vary from month-to-month.

Would you ever consider self-employment? Have you started saving for retirement yet? Why or why not?