When you decide to quit your W-2 job and take the plunge into entrepreneurship, one question that may be bothering you is, “How do I save for retirement now?” . Fortunately, small business owners have several options when it comes to retirement planning. Here we detail three of the most common he plans for self-employed people.
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If you are a business owner who works alone (i.e. has no employees), may be eligible For a solo 401(k).
Because you’re acting as both an “employee” and an “employer” in your Solo 401(k), you can contribute up to $69,000 total in 2024. The breakdown is as follows. As an “employee” of your own business, you can defer up to $23,000 of your 2024 earned income or 100% of your compensation, whichever is lower. As an employer, you can then contribute up to 25% of your compensation to the account.
The $69,000 total contribution limit does not include additional contributions if you are age 50 or older. If you’re 50 or older, you can contribute an additional $7,500 per year (meaning you could potentially contribute an additional $76,500 in 2024 if you qualify).
Also, if you are employed by another company (such as a day job), these limits apply across the board, so if you add beyond these limits while having both a business and a day job, Please note that you cannot attempt to donate funds.
Solo 401(k) breakdown
qualification | Individuals who are self-employed or run a business with no employees other than their spouse. |
Contribution limit | $69,000 in 2024 for individuals under 50; $76,500 in 2024 for individuals age 50 and older. |
income limit | $345,000 in 2024 |
tax | Pre-tax funds grow tax-deferred until retirement, and withdrawals made at retirement are taxed as regular income. |
IRAs are one of the easiest ways for anyone to save for retirement, whether they’re self-employed or a W-2 employee. Because this is a personal retirement account, you don’t have to set it up at work or through your company.
With a traditional IRA, you contribute pre-tax dollars to the account and they grow tax deferred until you withdraw them in retirement. You will then pay taxes when you withdraw your retirement funds. A Roth IRA is another solid option, except you don’t have to pay taxes on distributions when you contribute after-tax dollars to this account and make withdrawals in retirement.
In 2023, if you’re under 50, you can contribute up to $6,500. In 2024, the contribution limit increases to he $7,000.
You can open a traditional or Roth IRA at many financial institutions, including: charles schwab, CNBC Select ranks it as the best overall IRA account. The minimum investment deposit is $0 and we offer a wide range of retirement planning tools.
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Minimum deposit amount and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle you choose. Active Investing through Schwab One has no account minimums® Securities account. Automatic investing with Schwab Intelligent Portfolios® Minimum deposit of $5,000 required
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Fee
Fees may vary depending on the investment vehicle selected.schwab one® There are no account fees for securities accounts. There are $0 commissions on stock and ETF trades, $0 commissions on over 4,000 mutual funds, and a $0.65 fee per option contract.
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investment vehicle
Robo-advisor: Schwab’s Intelligent Portfolio® and Schwab Intelligent Portfolios Premium™ Ira: Charles Schwab Traditional, Roth, Rollover, Inherited, and Custodial IRAs.Plus, Individual Choice Retirement Account® (PCRA) Brokerage and trading: schwab one® Brokerage Accounts, Brokerage Accounts + Specialized Platform and Trading Support, Schwab Global Account™ and Schwab Organization Accounts
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investment options
Stocks, bonds, investment trusts, CDs, ETFs
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educational resources
Extensive retirement planning tools
some robo advisors improvement, you will have access to your IRA account. Betterment collects information about your personal preferences, including your risk tolerance, retirement horizon, and goals, invests in a portfolio that’s right for you, and automatically adjusts your asset allocation based on those factors over time. To do.
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Minimum deposit amount and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle you choose. For example, Betterment does not require customers to maintain a minimum investment account balance, but the minimum amount for ACH deposits is $10. Premium investments require a minimum balance of $100,000.
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Fee
Fees may vary depending on the investment vehicle selected, account balance, etc. here For more information.
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investment vehicle
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investment options
Stocks, bonds, ETFs, cash
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educational resources
Betterment offers retirement benefits and other educational materials
Terms and conditions apply. Not applicable to crypto asset portfolios.
Traditional IRA Breakdown
qualification | Individuals with income. |
Contribution limit | $7,000 in 2024 for individuals under 50; $8,000 in 2024 for individuals age 50 and older. |
income limit | Not the case with traditional IRAs. For Roth IRAs, income limits depend on your tax filing status and modified adjusted gross income. |
tax | With a traditional IRA, you pay taxes on withdrawals in retirement. With a Roth IRA, you pay taxes before you contribute, and withdrawals in retirement are tax-free. |
Simplified Employee Pension (SEP) IRAs are ideal for businesses of all sizes, even those with only a few employees. This type of retirement plan does not require employees to contribute anything. Rather, the employer (aka you as the business owner) makes all contributions to the traditional IRAs of your employees, including yourself.
There are also some guidelines for which employees are eligible for this type of retirement plan. Eligible employees must:
Employers must contribute the lesser of $69,000 in 2024 or up to 25% of the employee’s compensation. There are no catch-up contributions for SEP IRA plans.
The SEP IRA route is more complicated than other options because it requires more paperwork and has additional guidelines for who is considered eligible to participate.
September IRA breakdown
qualification | Almost every type of business is eligible, including sole proprietorships, S and C corporations, LLCs, self-employed individuals, and partnerships. |
Contribution limit | In 2024, the lesser of $69,000 or up to 25% of employee compensation (20% if self-employed). |
income limit | $345,000 in 2024 |
tax | Retirement distributions are taxed as ordinary income. |
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If you own a small business and are concerned about how to save for retirement, the good news is that you have several options. It may be helpful to start with the simplest method: opening and contributing to a traditional or Roth IRA. Then, as your business grows and your needs change, you can consider more complex options like a SEP IRA.
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