How Do I Set up a Self-Employed Pension?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 08 October 2018
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For people who are self-employed, the process of creating some sort of retirement plan is a major concern. Unlike individuals who work for others, the process of identifying possible self-employed pension options and determining which option is the best approach can seem somewhat confusing. Fortunately, there are several ways to go about selecting the right retirement or pension plan, structuring regular payments, and enjoying the benefits of all that hard work later in life.

One of the first tasks associated with setting up a self-employed pension plan is to identify the possible options. In some nations, there are pension plans that are ideal for people who freelance, own a sole proprietorship or have some other type of self-employment status as recognized by the local and national governments. The goal here is to identify any plan options that are not only geared toward the self-employed but also come with some type of tax breaks. For example, a Simplified Employee Pension IRA in the United States offers the benefit of being relatively easy to manage, with annual funding up to a maximum amount and the ability to defer taxes on the money in the pension until it is withdrawn later on.


After identifying all the possible options for a self-employed pension, the task focuses on narrowing the selections down to those that are the best fit for the individual’s needs. Here, factors such as any limits on annual contributions, whether to pay taxes on those contributions now or later, and even the type of returns anticipated on the plans must be taken into consideration. This particular task must be considered very carefully so that the right choice is made on the front end, preventing the need to switch to some other type of plan at a later date.

Keep in mind that a self-employed pension is an investment in the future. The idea is to match the rate of return on that pension as closely to the individual’s comfort level with risk as possible, while still balancing that need to minimize risk with the goal of having a certain amount of money set aside for the retirement years. This means looking into how the pension plan is managed, in terms of the combination of investments that are made on behalf of the pensioners. Should you find that a particular self-employed pension plan leans more toward investments that are somewhat risky while you are more conservative, it may be in your best interests to go with a plan that prefers to invest in securities that are somewhat stable in a variety of different economic situations while still earning an equitable though rarely spectacular return.



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