Profit Sharing Retirement

Profit Sharing Retirement

Profit Sharing Retirement

While self-employment brings tremendous risks and requires a great deal of effort, the benefits can also be tremendous. One such benefit is a wide array of retirement account options not available to most individuals who act as employees rather than self-employed individuals.

SIMPLE IRA is Mostly Employee-Funded

A 'Savings Incentive Match Plan for Employees' - or SIMPLE IRA - is primarily funded by the employee's earnings rather than employer funded. Up to $11,500 of an employee's earnings can be contributed as of 2009, or $13,000 for employees over 50 years of age. The only stipulation for self-employed individual is that no more can be contributed as an employee than is actually reported as profit on a Schedule C.

An employer is required to make a small contribution to a SIMPLE IRA in addition to the employee's contribution, though the amount is tiny - only between 1% and 3% of the employee's cearnings. For a maximum employee contribution of $11,500, this means the employer will be required to add no more than another $345 (3%).