If you're self-employed, you must offer yourself a retirement savings plan. It's a great way to reduce your taxable income, save a nice portion of your income and invest for retirement. Over time, the amount you can contribute to these plans adjusts for cost of living inflation. Become familiar with how much you can put into your plan each year, and aim to contribute an amount that's as close to that number as you can. Below are the IRS 2013 limits for self-employment retirement plans: SIMPLE IRAs, SEP IRAs and Solo 401(k)s or Individual 401(k)s.
SIMPLE IRA Contribution Limits 2013
Freelancers or small-business owners can generally contribute $12,000 to a SIMPLE IRA in 2013, up from $11,500 in 2012. The catch-up contribution limit is $2,500, which is unchanged. What's a catch-up contribution? People age 50 or older may be able to add money each year as a way to either jump start or pad out their retirement savings. It doesn't matter if you've saved a bunch or nothing at all, if you're 50-plus you can save a little bit more. And those who save regularly understand that every little bit adds up. If you work for an employer, you should confirm whether they offer catch-up contributions. But if you're a one-person operation, go ahead and give yourself the catch-up option.
SEP IRA Contribution Limits 2013
Many small-business owners, and especially freelancers, have SEP IRAs. You can have a SEP and a 401(k), and contribute the maximum to both. Which, it turns out, adds up to be a lot of money. And even more in 2013 than the year before. SEP IRA contributions are made as a percentage of income. You can put away up to 25% of gross income to a SEP IRA in 2013, with a cap at $51,000. There's no catch-up contribution with a SEP, but with those kind of limits, who needs to catch up?
Individual 401(k) Contribution Limits 2013
If you want a traditional 401(k) without the corporate overlords, an individual 401(k) or solo 401(k) is the option for you. It works just like a 401(k), and contribution limits for 401(k)s rise in 2013 to $17,500. That's a lot of money, but there's even more to be saved if you (the employer) match contributions made by you (the employee) you can contribute an additional 20% to 25% of salary. The combined contribution amount can't be more than 100% of your pay, nor can it exceed $51,000 in 2013. If you're exceeding that limit, congratulations, you are a super saver. You probably don't even need to about the catch-up contribution of $5,500 available to those who are age 50 or older.
A Solo Roth 401(k) is very similar. The limits are similar, but contributions are made after-tax. Your investments and earnings generally grow tax-free, even when they are withdrawn at retirement. There's no catch-up contribution offered with a solo Roth 401(k).
Contribution Limits for Other Types of IRAs in 2013
Don't have a self-employed IRA yet? Figure out which self-employed retirement plan makes sense for your business. But don't just avoid retirement savings altogether. You owe it to your staff, and by that I mean yourself. Give yourself a tax break that feathers your nest egg. Max out self-employed IRA and 401(k) contributions in 2013.
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