There are different kinds of clients and different kinds of work. Statistics show about 50% of private companies offer plans. Bearing in mind there are lots of small companies, although about 86% of bigger firms offer them, the percentage drops when you add in the many, many small businesses in the US. Not everyone is a full or part time employee. There are contract workers and people in the “gig economy.” There are people who sell on e-bay. There are about 30 million “non employer” businesses run by the owner. How can they do retirement planning?
The Solo 401(k). This might be the most attractive option because it allows for larger contribution levels. These plans allow you to defer in two tiers, for a total of about $69,000 in contributions for 2024. (1)
The Simplified Employee Person (SEP). Similar to the above plan, you can contribute up to 25% of your net employment income up to $69,000 (2024 number). It can be established as late as the date you file your tax return.
SIMPLE IRA Plan. In this case, “Simple” is an acronym for Savings Incentive Match Plan for Employees. It’s a version of an IRA. In this plan, the (2024) contribution limit is $16,000, however there is an advantage to this type of plan. This contribution can represent 100% of your net earnings. This can be setup January 1st to October 1st.
There are instances where you may be maxed out on the amount you can contribute to your plan. There are other options, such as setting up a traditional defined benefit plan. There are other ways you can put money aside for retirement you can consider.
There are two major benefits for retirement plans. One id the ability to reduce your taxable income by setting aside funds for your retirement. The second benefit is the growth taxes place in a tax deferred environment. You might have maxed out on contributions that reduce your taxable income, but you can still benefit from the tax deferral aspect if you setup an annuity and contribute on a regular basis.
Annuities have two segments, the accumulation phase and the distribution phase. The first phase is when you are adding money and building up value. There is an internal interest rate at which the money grows. You have other options including a return tied to stock market performance. These are Fixed Index Annuities. The annuities tied directly to stock market performance (through mutual funds held within the annuity) are variable annuities. In these, you do not know in advance what your performance will be.
The most important factor is once you have an income from employment, there are ways you can save for retirement throughout your working career.