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Self-Employed Retirement Plan Calculator

Updated Jan 24, 2024

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Small business owners planning for retirement must go through a different process than most people. The various retirement plans available to small business owners feature different contribution limits. Use this calculator to figure out your maximum contribution for retirement plans, such as a 401(k), Savings Incentive Match Plan for Employees individual retirement account (SIMPLE IRA) and Simplified Employee Pension IRA (SEP-IRA).

Key Terms

These are the key terms that you should understand to make the most of this 401(k) calculator:

  • Type of business: Select how your business is structured. Options include sole proprietorship/partner and corporation.
  • Contribution tax year: Select the tax year for which you will be making contributions.
  • Current age: Enter your current age.
  • Net profit: Enter your business’s net profit, as taken from Form 1040-Schedule C (or W-2 income if your business is a corporation).

What is the difference between a sole proprietorship and a corporation?

A sole proprietorship is considered the default business legal structure by the IRS. This is the easiest type of business structure to get off the ground. Income flows directly from your business activities into your bank account. With a sole proprietorship, you share a legal identity with your business and you take on all legal risk if you get sued.

A corporation is a legal entity separate from the business owner. Taxation rules are more complex for corporations and you pay yourself a salary out of the corporation’s earnings. However, the corporate structure protects your personal assets in the event of a lawsuit or bankruptcy.

What are the differences between a 401(k), SIMPLE IRA and SEP-IRA?

Small business retirement plans come in several forms. The 401(k) is a common choice for larger companies. This plan allows employees to make pretax contributions from their salaries, often with employer matches.

The SIMPLE IRA is geared toward small businesses. This permits employees to contribute a percentage of their income, with either matching or nonelective contributions from employers.

The SEP-IRA is designed more for small business owners and the self-employed. Contributions are only made by the employer. Contributions can be made for up to 25% of the employee’s compensation or $61,000.

Do small business owners have any tax advantages for retirement plans?

The Retirement Plans Startup Costs Tax Credit serves as a valuable incentive for small businesses aiming to provide retirement plans. This credit enables a deduction of up to 50 percent (or $500) from the startup and administration costs of the plan during its initial three years. If you choose to match or contribute to employee accounts, these contributions are also tax-deductible. Additionally, depending on your income, you may qualify for the Saver’s Credit.

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