Retirement Plans For Self-Employed Workers

Self-employed and worried you started retirement saving too late? We get it and we also know a secret most freelancers never hear: you may have access to some of the most powerful retirement planning tools out there, if you set them up in the right order. Julie Schwenzer sits down with CFP Jason Taylor to map a clear path from “I’ll deal with it later” to a real, repeatable plan that works with unpredictable income.

We start with the foundation most people skip: making sure your business reliably meets household needs before you commit to big retirement contributions. From there, Jason breaks down the most common myths, like thinking 401(k)s are only for large companies, assuming you can work forever, or betting your entire retirement on selling the business. Then we simplify the options, including traditional and Roth IRAs, SEP IRAs, SIMPLE IRAs, and the solo 401k, using an easy “envelope” mental model so the rules finally make sense.

You will also hear how contribution limits and employee rules shape the best choice, why cash flow planning matters as much as tax deductions, and how you can often fund plans later to match the reality of freelance seasons. If you want practical steps, clearer tax-smart decisions, and a retirement strategy you can actually stick with, hit play, subscribe, share this with a self-employed friend, and leave a quick review.

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Transcript

Welcome And Why It Matters

SPEAKER_01 0:03

Welcome to My Pocket FP, the podcast where your wallet finally meets its financial planner and they actually get along. Join your host Jason Taylor, certified financial planner, money sensei, and your guide to financial freedom. Whether you're planning for retirement or just trying to figure out where all your money went last weekend, we've got you covered. Get ready to take control of your financial life with smart tips, surprising insights, and yes, an app that fits right in your pocket. This is My Pocket FP because your future deserves more than guesswork.

SPEAKER_00 0:46

Self-employed

Start With Household Cash Flow

SPEAKER_00 0:48

earners often feel behind on retirement, but the truth is they have some of the most powerful planning tools available. Welcome back, everyone. I'm Julie Schwenzer here with Jason Taylor, certified financial planner and the creator of My Pocket FP. Jason, this is a big one for entrepreneurs and freelancers, and probably a big question that you hear. How do you make self-employment retirement plans? How do you kick that off?

SPEAKER_02 1:16

Yes, uh, thank you, Julie. First off, you have to make sure that you're meeting your household needs with your business. Uh so that's the first thing we look at before we put into retirement. Uh also, as if anything else, starting small is not a problem at all when you're first starting your retirement plans.

Misconceptions About Self-Employed Retirement

SPEAKER_00 1:34

What do you think is a big misconception that self-employed people have about retirement that you've encountered in your practice?

SPEAKER_02 1:45

Several things. I mean, one is that they have no options, you know, that the 401k is just for the big companies. Another is they can work the rest of their lives in the self-employed job and always make the money they need, uh, therefore not needing a retirement plan. The other is that they actually can sell their business in order to fund their retirement, which is not always the case.

SPEAKER_00 2:05

Oh, yeah, that would be a scary shock that that happens later in life. And then, you know, what can be confusing for a lot of people too is just breaking down these different types of plans. How would you describe them? I mean, the the common ones are the SUP IRA, a solo 401k, there's a simple IRA. Can you break down some of this for us?

IRA First Then Pick A Plan

SPEAKER_02 2:28

Yeah, so I'm just gonna rewind a bit because you know, before you know a self-employed individual should even you know look into a retirement plan, they should maximize their IRAs first because it's it's the easiest way. Um, you know, right now we're like 7,500 is the max contribution. Um, it's higher if you're above age 50. Uh, if you're not even putting that money towards retirement, uh, you're not ready to set up a retirement plan for your business. It's just one extra hassle you don't have to deal with. That's the simplest way to fund your retirement is through a traditional or Roth IRA.

SPEAKER_00 3:02

And then what about the benefits? Does it all come down to like taxes and what you can avoid?

SPEAKER_02 3:10

Yes, that's the biggest benefit. Also setting the money aside where it's earmarked for retirement. Uh so you know, they've got those thresholds where you can't take it up before you're 59 and a half. The limitations on you so that actually built for retirement is another benefit outside of just the tax benefit of retirement plans.

SPEAKER_00 3:29

And then what about like what the plans actually invest in? Like how do we sort through all that? And is it more simple than maybe we think it could be?

SPEAKER_02 3:39

Yeah, basically what I tell people is the each retirement plan is basically just an envelope. And that envelope can hold pretty much the same investments. And just the laws and rules around that envelope is the only thing that's different.

SPEAKER_00 3:53

So if you could walk us through the basics, like if you do have a self-employed person that uh wants to start their retirement account, where do they go first? Do they go to their bank first? Do they need a investment advisor? How do how are they gonna do all this? Do they

Employees Change The Best Option

SPEAKER_00 4:07

just go online and start one?

SPEAKER_02 4:09

I you know, it is that simple. But step one, I always tell people, you know, talk to a tax advisor or do some kind of um, you know, budget planning as well for your business um before you start putting money towards retirement. Like I said, um fund your IRA first, uh, your individual IRA. Uh then you will look at a uh simple plan just because it is the easiest. The other thing you have to take into account is whether you have employees or not. Because every plan changes based on that. Because like a simple plan is the closest thing to a 401k because the employer matches what the employee puts in. Uh whereas a CEP, it's like a profit sharing plan where you pick a percentage of the person's income and you have to do it across the board equal for everyone in the business. So that can be less lucrative if you have employees as an employer to put a lot into your retirement. But you have to do an equal percentage to everyone.

SPEAKER_00 5:10

What about income level?

Contribution Limits And Funding Flexibility

SPEAKER_00 5:12

Does that determine which plan makes the most sense uh usually?

SPEAKER_02 5:17

The biggest determinant for is how much money you can actually put towards retirement. And the great thing about you know 401k is you can do 401k uh profit sharing and matching, um, you know, up to you know, like you know, $54,000 you can put away towards retirement. Whereas you know, you're maxed out at you know $17,500 for a simple plan. So really determining how much you can put towards retirement makes a big decision maker for that.

SPEAKER_00 5:46

And if you're an ongoing freelancer and you you know you just work for yourself basically as an independent contractor and you don't know your income if it'll be steady, you know, uh can you fluctuate that amount that you contribute every year? Is there a way to do that?

SPEAKER_02 6:02

Yeah, that's a great thing about most of these plans is once they're set up, you can fund them up through October of the next year. So even if you know you have a bad year, but then your spring is really good, you can go back and fund your retirement plans at that point.

SPEAKER_00 6:17

You know what it seems like too when you start an account, it can be intimidating because you think there are certain rules you always have to follow, and sometimes you're uncertain about your future.

SPEAKER_02 6:27

Right. Yeah, the contributions can fluctuate, which is very nice as well. Um, there are rules that you have to follow, but as far as contributions, it's pretty flexible.

SPEAKER_00 6:38

And have you found that clients that you have who did not start a retirement account early that were self-employed did regret it?

SPEAKER_02 6:47

They definitely regret not starting earlier, but later in the years your business usually does better. And that's when you can you know do that 54,000 plus a year and really make up for it.

SPEAKER_00 6:58

Well, that's true. And then what about the advantages that these self-employed retirement plans um offer that maybe W-2 workers don't get? Is there any big differences?

SPEAKER_02 7:12

I think you know, as far as having the control amount of how much you know, profit sharing and how much matching, you can match up to 100% of what you put into your 401k, uh, which most employers uh you know it's like four or five percent.

SPEAKER_00 7:26

Oh wow, that's a big difference.

SPEAKER_02 7:28

That's one place where you can really you know step up

Saving Outside Retirement Accounts

SPEAKER_02 7:30

the savings.

SPEAKER_00 7:31

And then what about like realistically? A lot of people, you know, they they could say that, and I've heard this, um, that well, I'll just, you know, I'll have a fund for my retirement. I'm not gonna make it in an organized retirement account, but I'm just gonna keep it in like a money market or a savings account. And when I need to stop working, I'll be there. Realistically, does that actually pan out for clients that you've seen who have tried that way?

SPEAKER_02 7:57

I I have seen it work for some clients. The big benefit they're missing out on is if their tax rate is higher in the working years, they're missing out on that uh you know tax deduction. If they if they pull it out at a lower tax rate later, um, they're really missing out that that difference there that could save them some money in the long run.

SPEAKER_00 8:15

Yeah. So it's it's again about budgeting. And does your um I imagine that's something that is part of the plans that you have for your all your clients too is what they're gonna put in retirement and how they're gonna figure out what that amount is.

SPEAKER_02 8:28

That is a big part of it, is looking at cash flow and how much they can actually put into retirement. Uh, and also with you know what they plan doing with retirement, how much they need to put in.

SPEAKER_00 8:38

Yeah, yeah. And

Two Jobs One Contribution Limit

SPEAKER_00 8:40

I I feel like you know, it's such a huge hustle gig economy, right? It can be interesting because some people have that combination of that fixed income and then the side hustles. Could they have two retirement accounts? One for you know, one that they're creating themselves and then the other one through their companies.

SPEAKER_02 8:56

They can have two, but the max number is the max number, um, regardless of how many jobs they have.

SPEAKER_00 9:02

Okay, okay. And then so the biggest benefit, of course, is to have it, like you said, earmark that amount and tax taxes, tax deductions, yes. Anything that can be done for taxes. Is there any other advice that you have for self-employed people when it comes to retirement?

Make It Automatic And Sustainable

SPEAKER_02 9:18

You know, just like everything else, it's hard to do it all at once. Um, so if you can put in the money towards retirement paycheck by paycheck, just like you would at the job, it's easier that way. Um, you know, it's easier to do a smaller amount every two weeks than one big amount at year end where you might not have been able to save up the amount you want to put in.

SPEAKER_00 9:37

Yeah, absolutely. Well, thank you for breaking that down so clearly. We always appreciate your insight.

SPEAKER_02 9:43

I hope it helped.

SPEAKER_00 9:44

It did. Thank you, Jason.

SPEAKER_01 9:46

Thank you.

Closing Thoughts And App Invitation

SPEAKER_01 9:50

Thanks for tuning into My Pocket FP, where we believe small monthly changes can make big positive changes in your financial end game. If you're ready to level up your money game, head over to mypocketfp.com and download the app today. Your financial planner is now officially pocket sized and doesn't charge by the hour. Until next time, keep your goals high, your debt low, and your pockets smart.