In an age where workers are bombarded with a myriad of choices for their upcoming retirement, it can be easy for the self-employed to become overwhelmed with considering the various options available to them.
Here are some of the highlights of the three most popular plans available for you if you are self-employed and currently are considering your retirement options:
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1. Simplified Employee Pension (SEP)
The retirement option allows you to contribute as much as 25 percent of your net earnings from your self-employment to your account for up to $53,000 in 2015, according to the IRS
. In order to open this account, you must either complete a 5305-SEP agreement form and set up an IRS-approved plan, or create the SEP-IRA (Individual Retirement Account) through a bank.
2. 401(k) Plan
This option requires you to make salary deferrals up to $18,000 in 2015 with an additional $6,000 if you’re already 50 or older, as well as to contribute as much as 25 percent of your net self-employment earnings, according to the IRS. This plan also enables you to modify and direct your account to allow access through loans and hardship distributions.
3. SIMPLE IRAs (Savings Incentive Match Plan for Employees)
This is a traditional type of IRA plan that pertains to both the self-employed and to small businesses. Your contributions with this account would be tax deductible, and your individual investments to your account are tax deferred until you begin making withdrawals for your retirement.
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4. Profit-Sharing Plan & Money Purchase Plan
These two plans allow you to contribute up to 25 percent of compensation on a yearly basis up to $53,000 in 2015. The only difference for the money purchase plan is that you are required to contribute a fixed percentage of your yearly income, according to the IRS.
5. Defined Benefit Plans
These plans are traditional pension plans that allow up to a $215,000 maximum benefit for 2015, as well as contributions based upon factors such as your age, your years of service, your salary, and your returns on your investment plans.
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