Self-employed retirement plans Modesto, CA. The freedom of running your own company in Modesto, CA is one of the best aspects of working for yourself. Even so, this independence often comes with certain challenges, especially regarding retirement savings, since you don't have access to employer-sponsored retirement plans. Only 13% of self-employed individuals have a workplace retirement plan, but many could benefit from exploring their options. In addition to enjoying a financially stable retirement, seeking advice from a financial advisor in Modesto, CA to set up your self-employed retirement plan can provide significant tax advantages that enable your business to grow and succeed.
Few Modesto, CA investment consulting and retirement planning firms truly grasp the challenges faced by small business owners better than Correct Capital. Our founder's father was a small business owner himself (learn more about our story here), and we are deeply experienced in helping businesses with their retirement planning needs. We recognize that your business and retirement aspirations go far beyond just monetary concerns, and we are dedicated to offer customized solutions that reflect your objectives. Continue exploring to find out about your self-employed retirement plan options in Modesto, CA, or give us a call at Correct Capital at 877-930-401k or contact us online to consult with a small business financial advisor in Modesto, CA today.
Why Modesto, CA Self-Employed Individuals Should Have a Retirement Plan
Retirement plans for self-employed individuals are essential for preparing you for the future, they also provide tangible benefits today. From flexible contributions to significant tax savings, partnering with a financial advisor in Modesto, CA enables you to design your retirement plan to fit your specific needs.
Flexibility That Fits Your Income
When your earnings vary annually, a plan like a SEP IRA or Solo 401(k) gives you the freedom to tailor how much you save:
- Customizable Contributions: Save extra during successful years and reduce savings when revenues are down, so your plan works with your financial situation.
- Roth Options: 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 valuable tax benefits:
- Tax-Deductible Contributions: Contributions to a SEP IRA reduce what you owe in taxes, allowing you to keep more of your hard-earned money.
- Tax-Deferred Growth: Investments grow tax-free until withdrawal, providing your money more time to accumulate.
- State-Specific Incentives: Based on your location, you could qualify for additional credits as a self-employed individual. These regional incentives make these plans even more advantageous.
- 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 put into a retirement plan, cutting down your tax bill even more.
Protect Your Savings With Smart Investments
Planning for a safe retirement requires more than how much you save—it’s also about how you invest:
- Diversified Portfolios: Spreading your investments across different stocks, bonds, and alternatives can help reduce risk while still growing your savings.
- Emergency Back-Up: Combining your retirement strategy and a business emergency fund prevents you from tapping into your nest egg during tough times and incurring penalties.
Plan for the Future of Your Modesto, CA Business
A thoughtful retirement strategy can assist you think through what’s next with your Modesto, CA business:
- Selling Your Business: For those considering a sale, retirement accounts like SEP IRAs and Solo 401(k)s remain your personal assets and are not part of the sale. These accounts offer the reliable income you’ll need during retirement. It’s important to note that while selling your business results in a capital gain, deposits into these plans are capped at annual limits (e.g., a maximum of $7,000 for IRAs or up to $70,000 for Solo 401(k)s, including catch-up contributions, depending on plan details).
- Minimizing Taxes: Using retirement contributions wisely minimizes the taxes you are required to pay when you pass on your business.
- Succession Planning: For those winding down or handing over their business, your retirement savings provide the funds you need through the transition. You can also work with a financial advisor with expertise in succession and retirement planning to help with taxes on the sale.
With the proper savings strategy, you manage your financial future, reduce your tax burden, and build a strong framework for both your retirement and your business goals.
Why Start a Self-Employed Retirement Plan in Modesto, CA Now?
There’s no denying that time is one of the most crucial factors for building your retirement fund. Getting a head start not only allows you to build a larger nest egg but also lowers the financial burden of catching up later in life. The following are reasons why it pays to take action now:
The Cost of Waiting
Delaying your retirement savings may cause a major impact on the total you’ll have when you reach retirement age. The biggest reason is compound interest—the powerful process where your investments earn returns, and those returns, subsequently, generate even more returns. The more time your money has to grow, the more significant the effect of this growth.
Example: Taylor and Alex are both entrepreneurs. Their shared goal is to save $500,000 for retirement by age 65:
- Alex initiates savings of $5,000 annually at age 30.
- Taylor postpones starting contributions to age 40 but contributes $7,500 annually to bridge the gap.
By age 65, using a projected 7% annual return:
- Alex contributes $180,000 and achieves a total of $691,184.39*.
- Taylor puts in $195,500 but accumulates just $474,367.78*.
How Early Contributions Grow
Even modest contributions invested steadily can lead to substantial growth. Consider this example showing the power of compound interest:
- Starting at age 25: By investing $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: Contributing the same $200 per month leaves you with only $235,412.97* by age 65—a difference of over $260,000, simply due to a 10-year delay.
Starting sooner, the lower your annual savings needs each year to achieve your retirement goals.
*These calculations represent estimates calculated using NerdWallet’s Compound Interest Calculator, with the assumption of a 7% annual return. The contributions were calculated by multiplying the annual deposit amount by the total number of years contributions were made. This information is meant to provide general guidance and are not a promise of future results. Actual results may vary due to factors such as market conditions, fees, and your unique situation. Be sure to speak with a financial advisor for custom recommendations.
Take Control of Your Financial Future
For self-employed individuals in Modesto, CA, it can be tempting to focus more on reinvesting in your business over saving for retirement. That said, starting a plan now enables you to:
- Take advantage of tax-free future growth or tax-free withdrawals later on.
- Take advantage of adjustable savings that align with your income.
- Build a safety net that ensures stability, no matter how your business evolves.
Getting started now, the less you’ll have to worry about making up for lost time later in life. Taking steps toward your retirement goals today means managing your financial future and creating for yourself the ability to turn your attention to your objectives—both for your future retirement and your Modesto, CA business.
Types of Self-Employed Retirement Plans
There are several retirement savings options available for entrepreneurs in Modesto, CA, each with its own pros and cons. A financial advisor is available to help you understand the advantages and disadvantages of each choice and identify the one most suitable for your unique situation. In most cases, your self-employed retirement plan options in Modesto, CA consist of:
Traditional or Roth IRA
Plan Overview: Individual Retirement Accounts (IRAs), as explained here, represent long-term savings plans that offer distinct tax benefits. In a traditional IRA, the money you contribute is often tax-deductible, and returns grow free of current taxes, but retirement distributions are subject to income tax. In contrast, Roth IRAs require contributions from post-tax earnings, but qualified withdrawals in retirement, including earnings, are tax-free. In both types of accounts, withdrawals are penalty-free as long as you are at least 59½.
Eligibility: Unlike plans linked to your job, both traditional and Roth IRAs are open to those with a source of income.
Contribution Limits: For 2025, annual contribution limits for IRAs remain $7,000, or $8,000 for those aged 50+.
Simplified Employee Pension Plan (SEP IRA)
Plan Overview: The Simplified Employee Pension IRA is a retirement plan that allows those who are self-employed to contribute a percentage of their net earnings. Contributions must come from an employer, so, as a independent business owner, you (the employee) are limited to contributions from the employer role above the 25% you (the employer) have designated. If you have employees, you must contribute the same amount for them as you do for yourself. You may choose to contribute a set monetary value or a percentage of wages to employee accounts. A SEP IRA works well for entrepreneurs facing cycles of high revenue and low revenue. Unlike other plans, SEP IRAs lack the high fees associated with starting or maintaining other plans.
SEPs operate like standard IRAs, where contributions are made with pre-tax money and money withdrawn is subject to income tax.
Eligibility: Both employers and self-employed individuals can establish a SEP.
Contribution Limits: Contribution limits for employees in a SEP IRA are the lesser 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 employer-sponsored 401(k) plans, and allow you to contribute as both the employer and the employee with pre-tax money. This allows for more savings compared to SEPs or IRAs; however, the increased savings potential can be balanced by more constrained investment avenues. In a solo 401(k) plan, you can make either traditional or Roth deferrals, which have the same tax benefits as their IRA contribution counterparts.
Eligibility: Solo 401(k)s are available solely to business owners and their spouses are eligible to open and contribute to a solo 401(k).
Contribution Limits: If you are self-employed with a solo 401(k) plan, you can make two types of contributions:
- Elective deferrals (as an employee) of up to 100% of your earned income from self-employment, subject to the annual contribution limit. The contribution limits for 2025 include $23,500, or $31,000 if you are 50 or older, or $34,750 if you attain age 60-63 in 2025.
- Employer profit-sharing contributions (as an employer) must not surpass 25% of your net earnings from self-employment, which is your net profit minus half of your self-employment tax and the elective deferrals you made.
Total contributions are capped at $70,000, or $77,500 for individuals aged 50+ (for 2025), $81,250 for individuals turning 60-63 in 2025.
Individual Defined Benefit Plan
Plan Overview: The defined benefit plan is a retirement option that guarantees a set amount to business owners upon retirement. As opposed to defined contribution plans, this plan is not influenced by market performance, but allows self-employed individuals to know what they'll have in retirement. This option is ideal for high-earning self-employed individuals who aim to accumulate a significant sum for retirement and are prepared to contribute larger deposits. Contributions offer tax-deferred growth, and withdrawals are taxed as income upon retirement.
Eligibility: Entrepreneurs managing a one-person company or with less than five employees are eligible to open an individual defined benefit plan, but it's most commonly suggested for those over 50 who generate a minimum of $250,000 yearly. Typically, good candidates for defined benefit plans include:
- Entrepreneurs who desire to contribute more than $70,000 (or $77,500 for those aged 50+)
- Companies already contributing 3-4% but are open to increasing contributions
- Companies that have demonstrated consistent profit patterns
- Entrepreneurs over age 40 who aim to quickly build retirement savings or increase their retirement contributions rapidly
Contribution Limits: The cap on contributions must be determined by an actuary determined by your financial situation, age, and savings targets. Allowable contributions are updated yearly.
The Importance of a Financial Advisor in Modesto, CA for Your Self-Employed Retirement Plan
Working with a financial advisor in Modesto, CA specialized in self-employed retirement plans serves as an important asset for entrepreneurs. They have the expertise to help guide you through the challenges of retirement planning and craft a personalized approach that matches your objectives. A financial advisor in Modesto, CA will review your finances, understand your risk tolerance, and assist you in choosing wisely about saving and investing for retirement. Included in what we do for you includes:
- Guide you in choosing a plan that suits your unique requirements
- Tailor the plan to your needs even further
- Create a written plan in accordance with IRS guidelines
- Set up an asset trust plan
- Ensure you comprehend the plan's terms
- Review and modify your plan as needed
- 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 Modesto, CA: Correct Capital's Process
Entrepreneurs in Modesto, CA who don’t have the time or expertise to oversee their retirement savings strategy independently can become overwhelmed by their choices. At Correct Capital, our Modesto, CA financial advisors manage the majority of your savings plan setup for you, to help make meeting your retirement goals as easy as possible for you. We can help you get set 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 will assess if we're suited to your needs for you and your business. This initial call lets us learn about your needs with no obligation or significant effort on your part.
- Gather Information: Once we mutually decide to continue, we'll gather information, including whether you have employees, your current financial situation, and your retirement goals. This helps us create a tailored approach suited specifically for your needs.
- Review Your Plan: Once we've developed a plan using the information you provide, we'll meet with you and go over your plan step by step to ensure you understand it and show how it aligns with your goals.
- Implementation and Monitoring: Once we've agreed on your plan, we'll set everything up so you can begin contributing. As time goes on, we'll have regular meetings and review your strategy to make sure it remains aligned with your goals.
Our Modesto, CA financial advisors and retirement plan consultants are fiduciary advisors, who are obligated to they are legally and ethically bound to do what's in your best interest.
Other financial advisory services we offer in Modesto, CA include:
- Investment Management
- 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 Modesto, CA
Your business isn't "just a business" to you, and your Modesto, CA financial advisors need to offer more than just good financial guidance. With Correct Capital, we take the time to get to know our clients and their businesses to create tailored self-employed retirement plans. To every client in Modesto, CA, we provide our I.O.U. promise: all of the advice you get from us 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.
