Self-Employed? Here's How to Save Up to $62,000 a Year for Retirement

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Are you self-employed and wondering how best to save for retirement, and which type of account is best? Well, look no further than what's been called one-participant 401(k) plan, solo 401(k), solo-k, uni-k, or a one-participant k.

These plans are nothing more than a traditional 401(k) plan for a business owner that has no employees, or for a business owner and his/her spouse. And what's great about these plans, according to Uncle Sam, is that the business owner wears two hats in a 401(k) plan: employee and employer. And contributions can be made to the plan in both capacities, says the IRS.

Here's what you need to know about contributing to a solo 401(k). There's The elective deferral, the catch-up contribution for those age 50 and older, and the employer nonelective contributions.

First, the elective deferral. You as a self-employed individual can defer up to up to 100% of earned income up to the annual contribution limit, which is $19,000 in 2019.

The catch-up contribution. If you're age 50 or over you can defer another $6,000 on top of the $19,000. That makes it $25,000.

The employer's nonelective contribution. And then, as the employer, you can sock away up to 25% of earned income in the solo 401(k). Note: Earned income is defined as net earnings from self-employment after deducting both one-half of your self-employment tax and contributions for yourself.

Bottom line?

Total contributions to your solo 401(k) account, not counting catch-up contributions for those age 50 and over, cannot exceed $56,000. But if count catch-up contributions, the total you can contribute is $62,000.