Self-employed retirement plans Birmingham, AL. The flexibility of being your own boss in Birmingham, AL is one of the best aspects of having a self-directed career. However, this independence often comes with certain challenges, especially in terms of planning for retirement, as you don't have access to retirement programs through an employer. Only 13% of self-employed individuals have a workplace retirement plan, although many should consider exploring their options. In addition to achieving a more secure retirement, working with a financial advisor in Birmingham, AL to establish your self-employed retirement plan can provide significant tax advantages that help you to move your business forward.
Few Birmingham, AL financial advisory and retirement planning firms truly grasp the challenges faced by self-employed individuals as well as Correct Capital. Our company’s founder grew up with a father who was a small business owner himself (learn more about our story here), and we have a rich history of supporting entrepreneurs with their retirement planning needs. We understand that your goals for your business and retirement extend well past just monetary concerns, and we work tirelessly to create customized solutions that reflect your objectives. Keep reading to learn more about your self-employed retirement plan options in Birmingham, AL, or give us a call at Correct Capital at 877-930-401k or contact us online to talk to a self-employed financial advisor in Birmingham, AL today.
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Why Birmingham, AL Self-Employed Individuals Should Have a Retirement Plan
Retirement plans for self-employed individuals not only prepare you for the future, they also offer real benefits today. Offering flexibility in contributions to considerable tax savings, working with a financial advisor in Birmingham, AL helps you customize your retirement plan to fit your individual circumstances.
Flexibility That Fits Your Income
When your earnings vary annually, a plan like a SEP IRA or Solo 401(k) provides the option to tailor how much you save:
- Customizable Contributions: Contribute more during successful years and cut back when revenues are down, ensuring your plan works with your cash flow.
- Roth Options: Opting for a Roth Solo 401(k) lets you pay taxes on contributions now, enabling you to withdraw your savings tax-free down the road—an advantageous choice if you expect your tax rate is likely to rise in the future.
Save Money on Taxes
Retirement plans for self-employed individuals provide significant tax benefits:
- Tax-Deductible Contributions: Contributions to a SEP IRA lower your taxable income, so you can keep more of your hard-earned money.
- Tax-Deferred Growth: Investments grow tax-free until withdrawal, providing your money more time to compound.
- State-Specific Incentives: In some states, you might access additional credits as a business owner. These regional incentives can make these plans even more valuable.
- Retirement Savings Contributions Credit (Saver’s Credit): Those who meet the requirements can take advantage of a credit of up to 50% of the first $2,000 contributed a retirement plan, further reducing your tax bill even more.
Protect Your Savings With Smart Investments
Building a secure retirement isn’t only about how much you save—it’s also about how you invest:
- Diversified Portfolios: Distributing your investments across a mix of asset classes like stocks and bonds serves to mitigate financial risk while helping to grow your savings.
- Emergency Back-Up: Combining your retirement strategy and a financial buffer for your business prevents you from using your retirement funds during challenging periods and risking extra costs.
Plan for the Future of Your Birmingham, AL Business
A thoughtful retirement strategy can assist you think through what’s next with your Birmingham, AL business:
- Selling Your Business: When selling your business, plans like SEP IRAs or Solo 401(k)s stay in your name and are not part of the sale. These accounts offer the steady income you’ll need later on. Keep in mind that while selling your business results in a capital gain, retirement plan contributions are subject to yearly maximums (e.g., a maximum of $7,000 for IRAs or as much as $70,000 for Solo 401(k)s, factoring in catch-up contributions, based on plan compensation).
- Minimizing Taxes: Using retirement contributions wisely minimizes the taxes you might face when you sell your business.
- Succession Planning: For those winding down or handing over their business, your nest egg provide a stable foundation during the change. You might want to partner with a financial advisor who specializes in succession planning and retirement accounts to reduce taxes on the sale.
With the proper savings strategy, you gain control over your financial future, reduce your tax burden, and build a secure foundation for both your retirement and your business goals.
Why Start a Self-Employed Retirement Plan in Birmingham, AL Now?
There’s no denying that time is one of the most important factors in retirement planning. Beginning sooner rather than later not only helps you grow a more substantial retirement fund but also reduces the financial burden of catching up later in life. The following are reasons why it is beneficial to start now:
The Cost of Waiting
Putting off saving for retirement can have a substantial impact on the total you’ll have when you reach retirement age. The main reason is compound interest—the financial principle where your investments earn returns, and those returns, in turn, earn even more returns. The longer your money has to grow, the more significant the benefit of compounding.
Example: Alex and Taylor are both self-employed individuals. Their shared goal is to save $500,000 for retirement by age 65:
- Alex starts saving $5,000 annually at age 30.
- Taylor postpones starting contributions to age 40 but saves $7,500 annually to bridge the gap.
By age 65, assuming 7% annual return:
- Alex invests $180,000 and ends up with $691,184.39*.
- Taylor invests $195,500 but accumulates just $474,367.78*.
How Early Contributions Grow
Small, consistent savings invested steadily can lead to impressive growth. Here’s a simple scenario showing the impact of consistent growth:
- Starting at age 25: Putting aside $200 per month in a retirement plan with an expected yearly growth rate of 7%, you’ll accumulate $497,303.29* by age 65.
- Starting at age 35: Investing the same $200 per month leaves you with only $235,412.97* by age 65—a gap of over $260,000, simply due to a 10-year delay.
Starting sooner, the less you need to save each year to meet your retirement goals.
*The numbers shown in this scenario are based on estimates derived from NerdWallet’s Compound Interest Calculator, assuming a 7% annual return. Annual deposits were multiplied by the number of years to estimate total contributions. The scenarios provided are meant to provide general guidance and cannot predict actual future outcomes. Your individual results may differ depending on elements like market conditions, fees, and personal factors. Always consult a financial advisor for custom recommendations.
Take Control of Your Financial Future
For self-employed individuals in Birmingham, AL, it is often the case that you focus more on reinvesting in your business rather than saving for retirement. Even so, beginning a plan now allows you to:
- Leverage tax-free future growth or withdrawals without taxes in the future.
- Take advantage of contribution flexibility that align with your cash flow.
- Build a safety net that provides security, no matter how your business evolves.
The sooner you start, the less you’ll need to worry about making up for lost time later in life. Saving for retirement now means gaining control over your financial future and giving yourself the ability to concentrate on your goals—both for your future retirement and your Birmingham, AL business.
Types of Self-Employed Retirement Plans
Multiple retirement savings options designed for self-employed individuals in Birmingham, AL, each offering its own benefits and trade-offs. A financial advisor will guide you to understand the pros and cons of each plan and choose the one ideal for your unique situation. In most cases, your self-employed retirement plan options in Birmingham, AL consist of:
Traditional or Roth IRA
Plan Overview: IRAs, or Individual Retirement Accounts, are long-term savings plans that include specific tax advantages. In a standard IRA, the money you contribute is often tax-deductible, and investment earnings grow tax-deferred, but money taken out during retirement are taxable. In contrast, with Roth IRAs, you contribute using income already taxed, but qualified withdrawals in retirement, including earnings, are exempt from taxes. In both accounts, withdrawals come without penalties as long as you are at least 59½.
Eligibility: Unlike 401(k)s, which are employer-sponsored, both traditional and Roth IRAs are accessible for individuals with a source of income.
Contribution Limits: For 2025, annual contribution limits for IRAs are capped at $7,000, or $8,000 for those aged 50+.
Simplified Employee Pension Plan (SEP IRA)
Plan Overview: The Simplified Employee Pension IRA serves as a retirement savings option that permits entrepreneurs to set aside a portion of their self-employment income. Contributions must come from an employer, so, as a sole proprietor, you (the employee) are limited to contributions from the employer role above the 25% you (the employer) allocate. If you have employees, you must contribute the same amount for them as you do for yourself. You may choose to contribute a flat-dollar amount or a percentage of wages to employee accounts. SEP IRAs works well for businesses that experience periods of inconsistent earnings. Compared to other retirement options, SEP IRAs are free of expensive setup or ongoing fees.
SEPs function like conventional IRAs, where contributions are made with pre-tax money and money withdrawn is subject to income tax.
Eligibility: Any employer, including the self-employed can establish a SEP.
Contribution Limits: Contribution limits for employees in a SEP IRA are capped at the lower of:
- 25% of compensation, or
- $70,000 for 2025
As a self-employed person, the contribution you can make is based on a special calculation.
Solo 401(k)
Plan Overview: The Solo 401(k), sometimes referred to as an Individual 401(k) or one-participant 401(k) plan, is a retirement savings plan meant for businesses with no employees or when the sole employee is your spouse. This type of plan are similar to traditional employer-managed 401(k) plans, and enable contributions as both the employer and the employee with pre-tax money. This allows for more savings versus SEPs or IRAs; however, the increased savings potential may be offset by more constrained investment avenues. In a solo 401(k) plan, you can make either traditional or Roth deferrals, which offer the same tax benefits as their IRA contribution counterparts.
Eligibility: Only business owners and their spouses are eligible to open and contribute to a solo 401(k).
Contribution Limits: As a self-employed individual with a solo 401(k) plan, you are allowed to make two types of contributions:
- Deferrals as an employee of up to 100% of your self-employment income, subject to the annual contribution limit. In 2025, those limits are $23,500, or $31,000 if you're over 50, or $34,750 for those who turn 60-63 in 2025.
- Contributions as an employer (as an employer) must not surpass 25% of your net earnings from self-employment, which is defined as net profit minus half of your self-employment tax and the elective deferrals you made.
Your combined contributions must not surpass $70,000, or $77,500 if you're over age 50 (for 2025), $81,250 if you attain age 60-63 in 2025.
Individual Defined Benefit Plan
Plan Overview: Defined benefit plans is a retirement option that delivers a pre-established payout to entrepreneurs upon retirement. Unlike defined contribution plans mentioned above, this plan is not influenced by market performance, but allows self-employed individuals to know what they'll get in retirement. This plan is recommended for wealthier professionals who are focused on saving a large amount for retirement and are prepared to contribute sizeable contributions. Contributions are tax deferred, and withdrawals are taxed as income during retirement.
Eligibility: Entrepreneurs managing a one-person company or with a small staff of under five are eligible to open an individual defined benefit plan, but it's generally advised for people above age 50 who make $250,000 or more annually. In most cases, good candidates for defined benefit plans tend to be:
- Business owners or partners who aim to deposit more than $70,000 (or $77,500 if over age 50)
- Organizations that already put in 3-4% and are willing to do more
- Businesses showing consistent profit patterns
- Entrepreneurs over age 40 who desire to "catch up" or boost savings within a short timeframe
Contribution Limits: The cap on contributions must be determined by an actuary using your earnings, age, and retirement objectives. Contribution limits change annually.
The Importance of a Financial Advisor in Birmingham, AL for Your Self-Employed Retirement Plan
A financial advisor in Birmingham, AL experienced with retirement plans for the self-employed serves as an invaluable resource for those working for themselves. They have the expertise to help understand the intricacies of saving for retirement and craft a personalized approach that matches your objectives. An expert in your area will review your finances, understand your risk tolerance, and assist you in selecting the best options about saving and investing for retirement. Included in what we do for you features:
- Assist in selecting a plan that aligns with your objectives and circumstances
- Customize the plan to your needs even further
- Adopt a written plan as required by IRS rules
- Arrange a trust plan for assets
- Make sure you understand the plan's terms
- Review and modify your plan when necessary
- Deliver continuous support and financial insights to help you navigate your retirement journey
- Maximize what you receive in retirement by maximizing your social security benefits
Self-Employed Retirement Plans in Birmingham, AL: Correct Capital's Process
Self-employed individuals in Birmingham, AL who don’t have the time or expertise to manage their self-employed retirement plan on their own can become overwhelmed by their choices. Through our team at Correct Capital, our Birmingham, AL financial advisors handle the bulk of your savings plan setup for you, to help make meeting your retirement goals as straightforward as possible for you. We are here to assist you in setting up your self-employed retirement plan in a quick, four-step process:
- Schedule a Call: In just 20 minutes, a member of our advisor team can help understand if we're suited to your needs for you and your business. This initial call allows us to get a sense of your goals with zero commitment or significant effort on your part.
- Gather Information: If we both decide to move forward, we'll gather information, including your employee count, your present financial standing, and your long-term savings targets. This allows us to put together a personalized strategy suited specifically for your needs.
- Review Your Plan: Once we've developed a plan from the information you provide, we'll meet with you and go over your plan step by step to help you fully grasp it and explain its fit to your circumstances.
- Implementation and Monitoring: After we agree on your plan, we'll put everything in place so you can start saving. As time goes on, we'll check in and track your progress to make sure it remains aligned with your goals.
Our Birmingham, AL financial advisors and retirement plan consultants act as fiduciary advisors, which means they are committed by law and ethics to do what's in your best interest.
Other financial advisory services we offer in Birmingham, AL include:
- 401(k) Audit
- High-Net-Worth Wealth Management
- Retirement Planner
- Financial Planning
- Retirement Plan Consultants
- Fiduciary Financial Advisor
Call Correct Capital for Your Self-Employed Retirement Plan in Birmingham, AL
To you, your business is more than "just a business", and your Birmingham, AL financial advisors must deliver more than simply sound financial advice. At Correct Capital, we take the time to get to know our clients and their businesses to provide customized self-employed retirement plans. To every client in Birmingham, AL, we provide our I.O.U. promise: everything we recommend will be independent, objective, and unbiased. To get started on your self-employment retirement plan, reach out to Correct Capital at 877-930-401k or contact us online.
