I’ve talked in the past about how 401(k)s can be an amazing tool for building wealth for retirement. But most 401(k) plans are only available if you are working for a business that offers a plan. If you are self-employed, you likely won’t have access to a company plan. Fortunately, there are still some good options available to help you save.

A self-employed individual actually has several retirement plans to choose from. The simplest, most common one is a Traditional IRA (Individual Retirement Account). You can open this type of account with most brokerages, investment advisors, and banks. Individuals under age 50 can contribute up to $7,000 per year of earned income (for 2024) into an IRA, while those 50 and over can put in an additional $1,000 “catch-up” contribution. Most individuals are eligible for a tax deduction on their IRA contribution.

The Roth IRA is nearly identical to the Traditional IRA, with the biggest difference being the tax treatment. Money that you put into your Roth IRA is first subject to regular income tax treatment. In the future, when money is drawn out of the account, no taxes are due. Note that both IRA types are completely individual—you cannot co-own this with a spouse or employees.

Another option is the SEP (Simplified Employee Pension) IRA. This plan can be used by a business to set up, essentially, a super-sized IRA. The SEP allows for much larger contributions, up to the lesser of 25% of your annual compensation or $69,000 in 2024. These contributions, which technically are made by the business on behalf of the employees, is tax deductible to the business. However, if you have employees you are required to contribute the same percentage of their salary to their SEP account as you put in your own, which can be expensive for the business. SEP IRAs do not have a catch-up provision for those aged 50 and over.

A Solo 401(k) also has high contribution limits, but can only be used by a business owner with no employees, or by that person and his or her spouse. Both the employee and the business can take shield income from taxes by contributing to the plan. In 2024 you can contribute up to $23,000 as an employee, and then 25% of compensation up to $46,000 as the employer. Those aged 50 and over can also make an additional catch-up contribution of up to $7,500. In total, that can be a lot of money moving into a tax-deferred retirement account!

The last option I’ll mention is called a SIMPLE (Savings Incentive Match Plan for Employees) IRA. Think of a SIMPLE IRA as sort of a 401(k)-light. It’s meant for businesses with fewer than 100 employees, and employee contributions are limited to $15,500 in 2024, with a catch-up provision (50 and over) of $3,500. The employer is also required to contribute to the employee accounts. Both the employee and employer can shield income from taxes by contributing to the plan.

Each of these options has its pros and cons. The best option will depend on many things, such as how much you’re looking to save, whether you have employees, and if the business wants to contribute to employee accounts. It’s important that you take time to understand your options

(more fully than I’ve laid out here) before setting something up, since there are often costs involved and it may not be easy to change over to a different plan in the future.

The most important takeaway here is that you should choose something! All of these retirement plans offer the opportunity to save up and build future wealth with a tax advantage. In an era when few people have pensions and Social Security usually doesn’t cover all of your retirement expenses, you need other sources of income in retirement. A retirement plan can help you save up and grow your wealth while you are in your earning years.

However you choose to save for retirement, invest smartly and invest well!

Larry Sidney is a Zephyr Cove-based Investment Advisor Representative. Information is found at https://palisadeinvestments.com/ or by calling 775-299-4600 x702. This is not a solicitation to buy or sell securities. Clients may hold positions mentioned in this article. Past Performance does not guarantee future results. Consult your financial advisor before purchasing any security.