4 retirement plans to consider if you're self-employed

Being self-employed lets you do what you love on your own terms. But, it does add some complexity, including on how to save for retirement. Let's go over some retirement plans for the self-employed.  

Retirement Plans for Self-Employed

With a W2 job, your employer usually provides a retirement option for you. You can just put a portion of each paycheck into it and not worry. As the boss of yourself, you're responsible for deciding how to save for retirement.

Why should you save for retirement? The magic of compounding interest means the dollars you put away today will grow substantially when you're ready to retire. There are also tax advantages to many retirement accounts.

There are several types of retirement accounts for self-employed people.

1. Individual 401(k)

If you've ever worked for a traditional employer, you probably had an option to sign up for a 401(k) plan. The individual 401(k) plan is very similar. Sometimes, this is also called a solo 401(k) or a solo k.

The individual 401(k) comes with the traditional version and the Roth version. The traditional lets you contribute money on a pre-tax basis and it grows tax-deferred. Your money is taxes when you withdraw it down the road.

You contribute post-tax dollars to your Roth account and there's no taxation upon withdrawal.

As a self-employed worker, you can contribute a large amount to a solo 401(k). You can contribute to your plan as an employer and as an employee. Like W2 employees, you can contribute $19,000 a year (in 2019) of your earned income. As an employer, you can contribute up to 25 percent of your compensation.

Your contributions can't exceed $56,000 for 2019 but that's still a lot more than W2 employees can sock away.