Self-employed retirement plans Montgomery, AL. The freedom of being your own boss in Montgomery, AL offers many benefits of working for yourself. Even so, this flexibility often comes with certain challenges, notably regarding planning for retirement, since you don't have the benefit of employer-sponsored retirement plans. Only 13% of self-employed individuals have a workplace retirement plan, but many would be better off understanding their retirement options. In addition to enjoying a more comfortable retirement, working with a financial advisor in Montgomery, AL to set up your self-employed retirement plan can provide significant tax advantages that allow you to move your business forward.
Few Montgomery, AL investment consulting and retirement planning firms truly grasp the challenges faced by entrepreneurs as well as Correct Capital. Our founder's father was a small business owner himself (learn more about our story here), and we take pride in helping businesses with their retirement planning needs. We recognize that your business and retirement aspirations go far beyond simple financial figures, and we strive to offer personalized solutions that reflect your objectives. Read on to discover about your self-employed retirement plan options in Montgomery, AL, or give us a call at Correct Capital at 877-930-401k or contact us online to consult with a entrepreneurial financial advisor in Montgomery, AL today.
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Why Montgomery, AL Self-Employed Individuals Should Have a Retirement Plan
Retirement plans for self-employed individuals not only prepare you for the future, they also provide tangible benefits today. From flexible contributions to significant tax savings, working with a financial advisor in Montgomery, AL enables you to create your retirement plan to align with your individual circumstances.
Flexibility That Fits Your Income
When your earnings vary over time, a plan like a SEP IRA or Solo 401(k) gives you the option to tailor how much you save:
- Customizable Contributions: Contribute more during successful years and scale back when revenues are down, so that your plan fits your current income.
- Roth Options: A Roth Solo 401(k) lets you handle taxes upfront, so you can withdraw without tax penalties in the future—a wise move if you believe your tax rate is likely to rise in the future.
Save Money on Taxes
Plans designed for the self-employed provide powerful tax benefits:
- Tax-Deductible Contributions: Contributions to a Solo 401(k) lower your taxable income, allowing you to keep more of your hard-earned money.
- Tax-Deferred Growth: You won't pay taxes on investment growth until you withdraw it, providing your money more time to compound.
- State-Specific Incentives: In some states, you may be eligible for state-specific tax breaks as a self-employed individual. These state-level incentives make these plans even more beneficial.
- Retirement Savings Contributions Credit (Saver’s Credit): Eligible individuals can take advantage of a credit of up to 50% of the first $2,000 they contribute a retirement plan, further reducing your tax bill even more.
Protect Your Savings With Smart Investments
Creating a stable future goes beyond just how much you save—it’s also determined by your investment strategy:
- Diversified Portfolios: Allocating your investments across varied asset classes like stocks and bonds serves to reduce risk while still growing your nest egg.
- Emergency Back-Up: Supplementing your retirement savings with a financial buffer for your business prevents you from using your retirement funds during tough times and incurring penalties.
Plan for the Future of Your Montgomery, AL Business
Retirement planning enables you to plan ahead for what’s next with your Montgomery, AL business:
- Selling Your Business: When selling your business, retirement accounts like SEP IRAs and Solo 401(k)s remain your personal assets and won’t be included in the sale. These savings ensure the reliable income you’ll need during retirement. It’s important to note that while selling a business often leads to a capital gain, deposits into these plans are subject to yearly maximums (e.g., a maximum of $7,000 for IRAs or a maximum of $70,000 for Solo 401(k)s, with catch-up contributions, according to plan rules).
- Minimizing Taxes: Strategically planning your contributions can reduce the taxes you’ll owe when you pass on your business.
- Succession Planning: Whether you’re transferring ownership, your retirement accounts ensure financial security through the transition. You may also partner with a financial advisor experienced in both succession and retirement strategies to help with taxes during the sale.
With the best-fit retirement strategy, you gain control over your financial future, lower your tax bill, and create a solid base for both your retirement and your business goals.
Why Start a Self-Employed Retirement Plan in Montgomery, AL Now?
There’s no denying that time is one of the most valuable resources when it comes to saving for retirement. Starting early not only helps you grow a more substantial retirement fund but also minimizes the financial burden of playing catch-up as you get older. Here’s why it is beneficial to start now:
The Cost of Waiting
Putting off saving for retirement could lead to a significant impact on the total you’ll have when you stop working. The primary reason is compound interest—the concept where your investments earn returns, and those returns, then, accumulate even more returns. The more time your money has to grow, the larger the benefit of this growth.
Example: Two individuals, Alex and Taylor 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 waits until age 40 but puts away $7,500 annually to make up for lost time.
By age 65, assuming 7% annual return:
- Alex puts in $180,000 and ends up with $691,184.39*.
- Taylor puts in $195,500 but achieves a total of only $474,367.78*.
How Early Contributions Grow
Small, consistent savings contributed over time often create substantial growth. Here’s a simple scenario showing the power of compound interest:
- Starting at age 25: If you invest $200 per month in a retirement plan with an average annual return of 7%, you’ll end up with $497,303.29* by age 65.
- Starting at age 35: Saving the same $200 per month would result in only $235,412.97* by age 65—a difference of over $260,000, just from a 10-year delay.
The earlier you begin, the lower your annual savings needs each year to achieve your retirement goals.
*These calculations are estimates derived from NerdWallet’s Compound Interest Calculator, with the assumption of a 7% annual return. These calculations involved multiplying yearly deposits by the years contributed. This information is for illustrative purposes only and cannot predict actual future outcomes. Your individual results may differ due to factors such as market conditions, fees, and individual circumstances. Be sure to speak with a financial advisor for custom recommendations.
Take Control of Your Financial Future
For self-employed individuals in Montgomery, AL, it can be tempting to prioritize reinvesting in your business instead of saving for retirement. That said, starting a plan now allows you to:
- Leverage tax-free future growth or withdrawals without taxes later on.
- Benefit from contribution flexibility that align with your earnings.
- Build a financial cushion that provides security, no matter how your business develops.
Getting started now, the less you’ll need to worry about playing catch-up later in life. Taking steps toward your retirement goals today means taking control of your financial future and creating for yourself the opportunity to turn your attention to your dreams—both for your retirement years and your Montgomery, AL business.
Types of Self-Employed Retirement Plans
A variety of retirement savings options designed for entrepreneurs in Montgomery, AL, each with its own benefits and trade-offs. A financial advisor will guide you to learn about the advantages and disadvantages of each plan and identify the one best suited for your circumstances. In most cases, your self-employed retirement plan options in Montgomery, AL include:
Traditional or Roth IRA
Plan Overview: IRAs, or Individual Retirement Accounts, are long-term savings plans that offer specific tax advantages. In a traditional IRA, the money you contribute is often tax-deductible, and investment earnings grow tax-deferred, but retirement distributions are subject to income tax. In contrast, with Roth IRAs, you contribute are made with after-tax income, but qualified withdrawals in retirement, including earnings, are not taxed. In both cases, withdrawals don’t incur penalties as long as you are at least 59½.
Eligibility: While many retirement plans, such as 401(k)s, are tied to employment, traditional and Roth IRAs are accessible for individuals with taxable earnings.
Contribution Limits: For 2025, annual contribution limits for IRAs are capped at $7,000, or $8,000 if you're 50 or older.
Simplified Employee Pension Plan (SEP IRA)
Plan Overview: SEP IRAs offers a way to save for retirement that enables self-employed individuals to set aside a portion of their self-employment income. 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) already contributed. If you have employees, you must contribute the same amount for them as you do for yourself. It's your choice whether to contribute a fixed dollar figure or a percentage of wages to employee accounts. This type of plan is a good option for companies with periods of inconsistent earnings. Compared to other retirement options, SEP IRAs don’t have costly startup or administrative fees.
SEPs function like traditional IRAs, where the contributions are tax-deferred and money withdrawn is subject to income tax.
Eligibility: Employers of any type, including self-employed individuals can open a SEP.
Contribution Limits: Contribution limits for employees in a SEP IRA must not exceed:
- 25% of compensation, or
- $70,000 for 2025
For self-employed individuals, the allowable contribution is based on a special calculation.
Solo 401(k)
Plan Overview: Solo 401(k)s, sometimes referred to as an Individual 401(k) or one-participant 401(k) plan, is a retirement savings plan designed for companies that have 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 an employee or an employer with pre-tax money. This offers more savings versus SEPs or IRAs; however, the additional opportunities often come with more restricted investment choices. Using a solo 401(k), you can make either traditional or Roth deferrals, which share the same tax benefits as their IRA contribution counterparts.
Eligibility: This plan is exclusively for 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 have the ability to make two types of contributions:
- Elective deferrals (as an employee) of up to 100% of your self-employed earnings, capped at the annual contribution limit. For 2025, the limits will be $23,500, or $31,000 for those aged 50 and above, or $34,750 for those who turn 60-63 in 2025.
- Profit-sharing contributions (as an employer) cannot exceed 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.
The total contribution cannot exceed $70,000, or $77,500 for individuals aged 50+ (in 2025), $81,250 for individuals turning 60-63 in 2025.
Individual Defined Benefit Plan
Plan Overview: A defined benefit plan offers a structured retirement solution that delivers a pre-established payout to entrepreneurs upon retirement. In contrast to the plans discussed earlier, investment returns don’t affect the payout, but lets individuals clearly understand exactly how much they'll get in retirement. This option is recommended for higher-income self-employed individuals who want to save a large amount for retirement and are prepared to contribute larger deposits. Contributions are tax deferred, and withdrawals are taxed as income during retirement.
Eligibility: Any self-employed individual managing a one-person company or with less than five employees may establish an individual defined benefit plan, but it's generally advised for individuals aged 50+ who generate a minimum of $250,000 yearly. Generally, good candidates for defined benefit plans are:
- Entrepreneurs who desire to contribute more than $70,000 (or $77,500 for individuals 50 and older)
- Companies already contributing 3-4% with plans to contribute more
- Companies that have demonstrated consistent profit patterns
- Partners or owners 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 income, age, and retirement goals. Limits on contributions change annually.
The Importance of a Financial Advisor in Montgomery, AL for Your Self-Employed Retirement Plan
Working with a financial advisor in Montgomery, AL focused on self-employed retirement strategies serves as an important asset for entrepreneurs. They bring the skills needed to understand the intricacies of saving for retirement and develop a tailored strategy that reflects your aspirations. Your advisor in Montgomery, AL will evaluate your financial situation, identify your risk preferences, and guide you in selecting the best options about saving and investing for retirement. Part of what we do for you involves:
- Assist in selecting a plan that aligns with your objectives and circumstances
- Tailor the plan to your specific situation even further
- Adopt a written plan that complies with IRS regulations
- Arrange a trust plan for assets
- Ensure you comprehend the plan's terms
- Review and modify your plan to keep it aligned with your goals
- Offer continued financial education and guidance as you continue on the road to retirement
- Boost your retirement earnings by optimizing your social security benefits
Self-Employed Retirement Plans in Montgomery, AL: Correct Capital's Process
Entrepreneurs in Montgomery, AL who aren’t equipped with the time or understanding to handle their retirement savings strategy independently often feel overwhelmed as they look at their available plans. With Correct Capital, our Montgomery, AL financial advisors handle the bulk of your retirement planning for you, to help make meeting your retirement goals as hassle-free 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: It only takes 20 minutes, a member of our advisor team will assess if we're suited to your needs for you and your business. This brief introduction lets us learn about your needs with no pressure or significant effort on your part.
- Gather Information: Should we agree to proceed, we'll request information, including your employee count, your existing financial picture, and your long-term savings targets. This helps us create a custom plan designed just for you.
- Review Your Plan: After we put together a plan from the information you provide, we'll sit down with you and review your plan step by step to ensure you understand it and understand how it best correlates to your needs.
- Implementation and Monitoring: When we finalize on your plan, we'll put everything in place so you can initiate your savings journey. Over the course of our partnership, we'll check in and track your progress to keep it tailored to your evolving circumstances.
Our Montgomery, AL financial advisors and retirement plan consultants serve as fiduciary advisors, who are obligated to they are committed by law and ethics to prioritize your needs above all else.
Other financial advisory services we offer in Montgomery, 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 Montgomery, AL
To you, your business is more than "just a business", and your Montgomery, AL financial advisors need to offer more than just good financial guidance. Correct Capital takes pride in, we focus on building a relationship with our clients and their businesses to create customized self-employed retirement plans. All our clients in Montgomery, AL benefit from our I.O.U. promise: everything we recommend will be independent, objective, and unbiased. To take the first step on your self-employment retirement plan, reach out to Correct Capital at 877-930-401k or contact us online.
