Being self-employed is great: You have more freedom and flexibility, and working for yourself can be financially rewarding. As a self-employed person, you have another big opportunity: setting up a Simplified Employee Pension (SEP) IRA. With this move, you can potentially save even more for retirement than you could with a 401(k), and get started saving towards your biggest financial goal—financial independence.
A SEP IRA is ideal if you’re a successful professional with no employees who wants to shelter your income from taxes and invest for retirement. When you’re self employed and receive 1099 income, you pay both the employer and employee portions of Social Security and Medicare taxes. Contributing to a SEP reduces these along with federal and state income taxes. While it gives you the flexibility to decide how much you want to save each year, it also gives you much higher contribution limits than the $5,500 limit of a traditional IRA—and it can be just as easy to set up. It can be a powerful wealth management tool.