SCENARIO: You operate your business as a sole proprietorship or a single-member LLC that is treated as a sole proprietorship for tax purposes. Therefore, the tax code considers you self-employed.

You have no employees.

You’ve not yet set up a self-employed retirement plan for yourself. What? You’re missing out on what could be significant annual tax savings.

It’s time to jump on the retirement plan bandwagon. Thankfully, it’s not too late to set up a plan and get a deductible contribution on your 2024 Form 1040 (yep, the return you are about to file).

Here are your self-employed retirement plan options.

Simplified Employee Pension

The Simplified Employee Pension (SEP) is a stripped-down retirement plan intended for self-employed individuals and small employers.1

At the beginning of this article, we stipulated that you are self-employed and have no employees.

As a self-employed individual, you can make a deductible contribution of up to 20 percent of your net self-employment income to your SEP account. Net self-employment income usually equals the net profit shown on Schedule C or F minus the above-the-line deduction for 50 percent of self-employment tax.2

For 2024, contributions to your SEP account cannot exceed $69,000.3

SEP Pros

You can quickly establish a SEP at almost any brokerage firm or financial institution. You fill out Form 5305-SEP, which takes about five minutes. Done! It does not get any easier than this!

After you establish the SEP, you have essentially no administrative details to worry about. The government does not currently require any reporting for one-person SEPs.

You can establish a SEP as late as the extended due date of the return for the tax year for which you make your initial deductible contribution.

If you have a healthy net self-employment income, a SEP permits generous annual deductible contributions—up ... Log in to view full article.