Posted: 1:08 p.m. Thursday, May 23, 2013
It all depends on how much money you think you can save each year. Fancy plans let you save 25 percent of your income or more. Modest plans have low contribution limits.
If you won’t put away any more than $5,000 a year ($6,500 if you’re 50 and up), don’t bother with the plans designed for business. Chose a plain Individual Retirement Account.
If you’ve set your sights higher, however, you can choose among three plans that let you pack money away. They work best if you’re your own boss and have no employees (except maybe your spouse). If you do have employees, these plans have to cover them, too.
Here’s a quick look at the possibilities:
Solo 401(k)s have a huge advantage for people with something less than top-level earnings. These plans let you start by saving 100 percent of your earnings up to $17,500 ($23,000 if you’re 50 and up), and start apply the percentages after that. The result is a much higher possible level of savings than you’d get with a SEP-IRA. For a comparison, using your actual income, go the 401(k) calculator at Beacon Capital Management Advisors.
In any of these plans, you can use regular IRAs or 401(k)s, for tax-deferred contributions. If you’d rather skip the tax deferral in favor of tax-free withdrawals in retirement, choose Roth IRAs or Roth Solo 401(k)s. Low cost plans are available through no-load mutual fund groups such as Vanguard, Fidelity or T.Rowe Price, or discount brokerage firms such as Charles Schwab or TD Ameritrade.