Self-Employed? Save More by Setting Up Your Own Retirement Plan

Posted on 10.21.14

Profit Sharing Plans - Richmond CPA FirmIf you are self-employed, you may be able to set up a retirement plan that allows you to make much larger contributions than you could make as an employee. For example, the maximum 2014 employee contribution to a 401(k) plan is $17,500 — $23,000 if you are age 50 or older. Look at how the limits for these two options available to the self-employed compare:

1. Profit-sharing plan. The 2014 contribution limit is $52,000 — $57,500 if you are age 50 or older and the plan includes a 401(k) arrangement.

2. Defined benefit plan. This plan sets a future pension benefit and then actuarially calculates the contributions needed to attain that benefit. The maximum future annual benefit toward which 2014 contributions can be made is generally $210,000. Depending on your age, you may be able to contribute more than you could to a profit-sharing plan.

You do not even have to make your 2014 contributions this year. As long as you set up one of these plans by Dec. 31, 2014, you can make deductible 2014 contributions to it until the 2015 due date of your 2014 tax return. Additional rules and limits apply, so contact us to learn which plan would work better for you.

Source: PDI Global

Image: Getty Images
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.