So great that you’re thinking about this! As a self-employed person for the last 11 years, it took me a long time to tackle my retirement plan.
I found Vanguard’s small business site (and its comparison between the options) to be super helpful. It breaks down the advantages and the eligibility requirements for the various types in an easy chart.
I ended up choosing the Solo 401k because it allowed me the highest contribution amount – $18,000 as an individual and then also an employer contribution* on my own behalf (more on that in a moment). This was key to helping me catch up from my hiatus from retirement investing. And, since we don’t have any employees (and my business partner is also my spouse), this option works for us. It does come with a little more administration since you are responsible for making the contributions yourself.
*The thing about employer contributions (you, as the employer, on your own behalf) is that there’s some pretty detailed math that takes into account your net profit, self-employment taxes, etc. I found it absolutely worth it to spend the time on the calculations, because it works out that I can contribute in the neighborhood of 20% of my net income as the “employer” (and that’s in addition to my individual contribution.)
In addition to feeling better because I’m now contributing toward my future, the tax ramifications were HUGE. I ended up eliminating one whole estimated tax payment per year! A 25% reduction in my tax liability. Yes, please!
Good luck and let us know how it’s going?
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