Self-Employed, Contractor or Selling Ads on Your Blog: Best Ways to Save for Retirement

You’re an independent (economically speaking). You either work for yourself, consult, freelance, have a start-up business or a business that employs only a few people.   In any case, you don’t have a structured way to save for your retirement, an employer sponsored pension, or 401k.  And you need one! The IRS has several great ways to save for your retirement if you’re self-employed, but who does the IRS consider self-employed? The answer is anyone who receives a 1099 for contract work, has a company (LLC, “S” or “C” corp) even if you’re the only employee, or has “side” income (blogger selling ads).  Basically, if you have a profit motive, (e.g. selling ads, selling cupcakes or serving clients), you’re self-employed in the IRS’s eyes. If you are Self-employed in the IRS’s eyes, what options are open for saving for retirement in a qualified (no tax on growth) way. SIMPLE IRA

  • Contributions –  up to $12,000/year employee contribution (that’s you as the employee of your business)
  • Still working? Can’t contribute to a SIMPLE IRA if you’ve maxed out on your 401k in your day job.
  • Penalties  and Taxes – A SIMPLE IRA follows the same rules as a traditional IRA. You would have to take distribution to convert your SIMPLE IRA to a Roth
  • Got  Employees (other than spouse) – You must match either a flat 2% from your employees’ pay  or up to 3% dollar for dollar of employees contribution.


  • Contributions –  up to 25% of your net earnings from your business up to $51,000 in 2013.
  • Still Working? – SEP IRA contributions are not combined with 401k contributions in your day job. If you max out your 401k contributions, you can’t separately max out your SEP IRA contributions.
  • Penalties and Taxes – a SEP IRA follows the same rules as a traditional IRA You would have to take distribution to convert your SIMPLE IRA to a Roth
  • Got Employees (other than spouse)You must make the same percentage contribution for all employees who are 21 and older and earn more than $550/year

One Participant 401k (also called Solo, Individual or Uni 401k)

  • Contributions –  up to $17,000/year as your own employee and up to 25% of your net earnings as long as the total of the two is less than $51,000 for 2013.
  • Still Working? – Limited to a total annual contribution of $17,000. If you max out in your day job, you cannot contribute the salary part  (your $17k). You can still contribute up to  25% net earnings
  • Penalties and Taxes – Contributions to your Solo 401k can be made after tax (Roth). Penalties for early withdrawals (before age 59 ½) are 10%. You can borrow up to ½ the balance of your Solo 401k (not to exceed $50,000 and check with your plan administrator, because some do not allow it).
  • Got Employees (other than spouse)ONLY for self-employed person and spouse (working with you). If you hire an employee, your solo becomes a general 401k and is thus subject to ERISA rules.

Now you know the general info. There are two important things to consider when deciding which plan to take are:

  1. Are you still working a day job that is contributing to a 401k?
  2. When, if ever, do you expect to hire an employee?

If it’s just going to be you (maybe your spouse helps out sometimes) and it’s your only source of employment, you can easily take on a solo 401k and stash away as much as possible.  If you are expecting to hire an employee soon, consider a SEP or SIMPLE IRA and do the math to figure out how much you plan to contribute and how much you can contribute on behalf of your employee. Remember, you can always have an individual traditional or Roth IRA if you’re not ready for to offer a plan yet.