A Simple IRA (Savings Incentive Match Plan for Employees) is a retirement savings plan designed for small businesses with 100 or fewer employees. It allows both the employer and the employee to make contributions to the plan, and the contributions are tax-deductible for the employer and tax-deferred for the employee until withdrawal.
As a freelancer, you can also establish a Simple IRA plan for yourself. The maximum employee contribution limit is $13,500 for 2021, with an additional $3,000 catch-up contribution allowed for individuals age 50 or older. As an employer, you can choose to either match the employee’s contribution up to a certain percentage of their salary or make a fixed contribution of 2% of the employee’s compensation.
One potential advantage of a Simple IRA over other retirement savings plans is that it is easy to set up and administer, with minimal paperwork and low administrative costs. Additionally, it may be a good option for freelancers who have a small number of employees or are considering hiring employees in the future.
However, the contribution limits for a Simple IRA are lower than those for a Solo 401(k) or a SEP IRA, so it may not be the best option for freelancers who want to save a significant amount towards retirement. Additionally, the employer contributions are mandatory, which may be a disadvantage for freelancers who have variable income.
A Simple IRA can be a good retirement savings option for freelancers with few employees who want a low-cost, easy-to-administer plan. However, it’s important to consider all available options and consult with a financial advisor to determine the best retirement savings plan for your individual circumstances.
See also: SEP IRA