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Summary Evaluate Plan.docx Evaluating My Retirement Plan The evaluation for a self-employed is a little different from someone thats employed by a company. As an owner of a hair salon having a retirement plan is very important. 401(k) Plan is an employer- sp
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Evaluate P Evaluating My Retirement Plan The evaluation for a self-employed is a little different from someone thats employed by a company. As an owner of a hair salon having a retirement plan is very important. 401(k) Plan is an employer- sponsored retirement account offered to the employees...

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  • March 17, 2021
  • 1
  • 2020/2021
  • Summary

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  • evaluate plandocx evaluating my retirement plan the evaluation for a self employed is a little different from someone thats employed by a company as an owner of a hair salon having a retirement

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Evaluating My Retirement Plan



The evaluation for a self-employed is a little different from someone that’s employed by a company. As
an owner of a hair salon having a retirement plan is very important. 401(k) Plan is an employer-
sponsored retirement account offered to the employees of a company but for the self-employed they
must purchase a plan from outside sources like from the IRS.

The IRS offers several retirement plan that can work for someone that is self-employed. Simplified
Employee Pension (SEP) plan allows self-employed to contribute to traditional IRSs. By contributing as
much as 25% of their net earning from self-employment and up to $58,000 for 2021 ($57,000 for 2020
and $56,000 for 2019). To open a SEP-IRA plan is go through a bank or other financial institutions such
as credit unions.

To qualify for 401(k) plan as a self-employed person must make annual salary deferrals up to $19,500 in
2021, plus an additional $6,500 in 2021 if their 50 or older either on a pretax basis or as designated Roth
contributions. Also, contribute up to an additional 25% of their net earnings from self-employment for
total contributions of $58,000 for 2021 ($57,000 (for 2020 and $56,000 for 2019), including salary
deferrals. Self-employed can make contributions on behalf of themselves only if they have net earnings
(compensation) from self-employment in the trade or business for which the plan was set up. They net
earnings must be from their personal services, not from their investments. If they have a net loss from
self-employment, they can't make contributions for themselves for the year, even if they can contribute
for common-law employees based on their compensation.

Pros and Cons:

 A solo 401(k) retirement plan allows for large amounts of money to e invested with pre-tax
dollars. It provides some of the benefits of a traditional 401(k) for those who don’t have access
to a traditional employer-sponsored 401(k) retirement account.
 Can’t open a solo 401(k) if they have any employees (though they can hire their spouse so they
can also contribute to the plan as an employee- and they can match their contributions as the
employer).

This is essentially a 1-person 401(k) plan for self-employed individuals or business owners with
no employees, in which they’re the employer and the employee.



Reference Cite

https://www.irs.gov/publications/p560#en_US_2019_publink10008966

https://www.sofi.com/learn/content/different-retirement-pl an-types/

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