Self-employed retirement plans Montgomery, AL. The flexibility of running your own company in Montgomery, AL is one of the greatest advantages of having a self-directed career. Even so, this flexibility sometimes brings with certain challenges, particularly in terms of building your retirement fund, since you don't have access to a workplace retirement plan. Only 13% of self-employed individuals have a workplace retirement plan, yet countless would be better off exploring their options. In addition to enjoying a more comfortable retirement, partnering with a financial advisor in Montgomery, AL to create your self-employed retirement plan offers significant tax advantages that enable both you and your business to thrive.
Few Montgomery, AL investment consulting and retirement planning firms truly grasp the challenges faced by entrepreneurs better than Correct Capital. The father of our founder was a small business owner himself (check out our story here), and our firm take pride in helping businesses with their retirement planning needs. We know that your business and retirement aspirations go far beyond just monetary concerns, and we are dedicated to create tailored solutions that reflect your objectives. Read on to discover about your self-employed retirement plan options in Montgomery, AL, or reach out to Correct Capital at 877-930-401k or contact us online to speak with a entrepreneurial financial advisor in Montgomery, AL today.
Why Montgomery, AL Self-Employed Individuals Should Have a Retirement Plan
Retirement plans for self-employed individuals help prepare you for the future, they also offer real benefits today. From flexible contributions to significant tax savings, working with a financial advisor in Montgomery, AL helps you customize your retirement plan to align with your unique financial situation.
Flexibility That Fits Your Income
If your income changes over time, a plan like a SEP IRA or Solo 401(k) gives you the flexibility to adjust how much you save:
- Customizable Contributions: Save extra during successful years and reduce savings when revenues are down, so your plan aligns with your financial situation.
- Roth Options: Opting for a Roth Solo 401(k) lets you handle taxes upfront, enabling you to withdraw your savings tax-free down the road—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 offer significant tax benefits:
- Tax-Deductible Contributions: Contributions to a SEP IRA shrink your tax liability, helping you keep more of your income.
- Tax-Deferred Growth: Investments grow tax-free until withdrawal, giving your money more time to compound.
- State-Specific Incentives: In some states, you could qualify for extra deductions as a sole proprietor. These state-level incentives make these plans even more valuable.
- 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, cutting down your tax bill even more.
Protect Your Savings With Smart Investments
Creating a stable future requires more than how much you save—it’s also linked to the way you invest:
- Diversified Portfolios: Allocating your investments across different stocks, bonds, and alternatives can help reduce risk while continuing to build your retirement fund.
- Emergency Back-Up: Supplementing your retirement savings with a business emergency fund prevents you from dipping into savings during tough times and incurring penalties.
Plan for the Future of Your Montgomery, AL Business
A thoughtful retirement strategy can assist you think through what’s next with your Montgomery, AL business:
- Selling Your Business: If you’re planning to sell, accounts such as SEP IRAs or Solo 401(k)s remain yours and won’t be included in the sale. These savings ensure the financial stability you’ll need during retirement. Keep in mind that while selling a business often leads to a capital gain, retirement plan contributions are restricted by contribution limits (e.g., as much as $7,000 for IRAs or as much as $70,000 for Solo 401(k)s, factoring in catch-up contributions, depending on plan details).
- Minimizing Taxes: Making the most of retirement savings minimizes the taxes you might face when you transfer your business.
- Succession Planning: For those winding down or handing over their business, your retirement accounts ensure financial security during the change. You might want to seek advice from a financial advisor experienced in both succession and retirement strategies to reduce taxes during the sale.
With the proper savings strategy, you gain control over your financial future, cut down your tax obligations, and build a secure foundation 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 important factors when it comes to saving for retirement. Starting early not only allows you to build a larger nest egg but also lowers the financial burden of saving aggressively in the future. This is why it pays to take action now:
The Cost of Waiting
Waiting to start your retirement fund can have a significant impact on the savings you’ll have when you stop working. The biggest reason is compound interest—the concept where your investments earn returns, and those returns, in turn, earn even more returns. The greater time span your money has to grow, the greater the benefit of this compounding process.
Example: Taylor and Alex are both entrepreneurs. Both of them want 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 puts away $7,500 annually to bridge the gap.
By age 65, assuming 7% annual return:
- Alex puts in $180,000 and ends up with $691,184.39*.
- Taylor contributes $195,500 but only ends up with $474,367.78*.
How Early Contributions Grow
Even modest contributions invested steadily often create substantial growth. Consider this example showing the power of consistent growth:
- 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: Investing the same $200 per month yields only $235,412.97* by age 65—a gap of over $260,000, just from a 10-year delay.
The earlier you begin, the less effort required each year to achieve your retirement goals.
*The figures provided in this example represent estimates generated with NerdWallet’s Compound Interest Calculator, assuming a 7% annual return. Annual deposits were multiplied by the number of years to estimate total contributions. This information is meant to provide general guidance and are not a promise of future results. Your individual results may differ depending on factors such as market conditions, fees, and personal factors. Always consult a financial advisor for guidance tailored to your needs.
Take Control of Your Financial Future
If you’re self-employed in Montgomery, AL, it might seem easier to prioritize reinvesting in your business rather than saving for retirement. Even so, starting a plan now allows you to:
- Leverage tax-free future growth or tax-free withdrawals down the road.
- Benefit from adjustable savings that change with your income.
- Establish a financial cushion that offers peace of mind, no matter how your business changes.
Getting started now, the less you’ll be required to worry about playing catch-up later in life. Taking steps toward your retirement goals today means taking control of your financial future and allowing yourself the ability to focus on your dreams—both for your golden years and your Montgomery, AL business.
Types of Self-Employed Retirement Plans
There are several retirement savings options available for entrepreneurs in Montgomery, AL, each offering its own pros and cons. A financial advisor is available to help you learn about the advantages and disadvantages of each option and choose the one most suitable for your circumstances. Generally speaking, 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 include specific tax advantages. 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, with Roth IRAs, you contribute from post-tax earnings, but eligible distributions during retirement, including earnings, are tax-free. In both types of accounts, withdrawals come without penalties as long as you are at least 59½.
Eligibility: Unlike 401(k)s, which are employer-sponsored, traditional and Roth IRAs are available to anyone with a source of income.
Contribution Limits: For 2025, annual contribution limits for IRAs remain $7,000, or $8,000 if you qualify for catch-up contributions.
Simplified Employee Pension Plan (SEP IRA)
Plan Overview: A Simplified Employee Pension (SEP) IRA is a retirement plan that permits self-employed individuals to set aside a portion of their self-employment income. Contributions can only be made by an employer, so, as a self-employed individual, you (the employee) are limited to contributions from the employer role beyond the 25% you (the employer) allocate. If you have employees, you are obligated to contribute the same amount for them as you do for yourself. It's your choice whether to contribute a flat-dollar amount or a percentage of wages to employee accounts. A SEP IRA is a good option for companies with fluctuating revenue streams. Compared to other retirement options, 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 retirement distributions are taxable.
Eligibility: Any employer, including the self-employed can set up 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
For self-employed individuals, the amount eligible to be contributed 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 self-employed retirement plan designed for companies that have no employees or where the only employee is a spouse. These plans operate much like standard 401(k) plans, and let you make contributions as both the employer and the employee with pre-tax money. This offers more savings versus SEPs or IRAs; however, the additional opportunities can be balanced by more limited investment options. Using a solo 401(k), you can make either traditional or Roth deferrals, which offer the same tax benefits as their IRA contribution counterparts.
Eligibility: Solo 401(k)s are available solely to business owners and their spouses can set up 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:
- Deferrals as an employee of up to 100% of your earned income from self-employment, up 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 for those who turn 60-63 in 2025.
- Profit-sharing contributions (as an employer) are limited to 25% of your net self-employment income, which is your 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 for individuals aged 50+ (for 2025), $81,250 for those aged 60-63 in 2025.
Individual Defined Benefit Plan
Plan Overview: Defined benefit plans offers a structured retirement solution that delivers a set amount to entrepreneurs upon retirement. In contrast to the plans discussed earlier, investment returns don’t affect the payout, but lets individuals clearly understand the precise amount they'll get in retirement. This plan is best suited for high-earning self-employed individuals who aim to accumulate a significant sum for retirement and are willing to make larger deposits. Contributions grow tax-free until withdrawal, and withdrawals are taxed as income in retirement.
Eligibility: Self-employed professionals running an owner-only business or with a small staff of under five can open 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:
- Business owners or partners who aim to deposit more than $70,000 (or $77,500 for those aged 50+)
- Businesses currently investing 3-4% and are willing to do more
- Businesses with proven consistent profit patterns
- Entrepreneurs over age 40 who desire to "catch up" or accelerate the retirement savings
Contribution Limits: The contribution limit is calculated by an actuary based on your earnings, age, and retirement objectives. Limits on contributions are updated yearly.
The Importance of a Financial Advisor in Montgomery, AL for Your Self-Employed Retirement Plan
Working with a financial advisor in Montgomery, AL specialized in self-employed retirement plans can be an invaluable resource for entrepreneurs. They offer the knowledge to assist navigate the complexities of retirement planning and craft a tailored strategy that reflects your aspirations. Your advisor in Montgomery, AL will review your finances, understand your risk tolerance, and assist you in selecting the best options about saving and investing for retirement. Part of what we do for you features:
- Guide you in choosing a plan that suits your unique requirements
- Further adapt the plan to fit you personally even further
- Formalize a plan in writing as required by IRS rules
- Arrange a trust plan for assets
- Ensure you comprehend the plan's terms
- Monitor and adjust your plan to keep it aligned with your goals
- Provide ongoing education and advice to help you navigate your retirement journey
- Boost your retirement earnings by making the most of your social security
Self-Employed Retirement Plans in Montgomery, AL: Correct Capital's Process
Self-employed individuals in Montgomery, AL who don’t have the time or expertise to manage their retirement savings strategy on their own often feel overwhelmed when faced with their choices. Through our team at Correct Capital, our Montgomery, AL financial advisors manage the bulk of your retirement planning for you, to help make meeting your future savings targets as hassle-free as possible for you. We are here to assist you in setting up your self-employed retirement plan in four simple steps:
- Schedule a Call: A quick 20-minute call is all it takes, a member of our advisor team can determine if we're a good fit for you and your business. This short conversation helps us learn about your needs with zero commitment or major time investment on your part.
- Gather Information: If we both decide to move forward, we'll ask for information, including whether you have employees, your existing financial picture, and your future objectives. This enables us to craft a personalized strategy that aligns with your goals.
- Review Your Plan: Once we've developed a plan using the information you provide, we'll sit down with you and review your plan in detail to make sure it's clear and show how it aligns with your goals.
- Implementation and Monitoring: Once we've agreed on your plan, we'll put everything in place so you can start saving. Throughout our relationship, we'll meet with you and monitor your plan to ensure it stays suited to your needs.
Our Montgomery, AL financial advisors and retirement plan consultants serve as fiduciary advisors, meaning they are required by law and ethical standards to do what's in your best interest.
Other financial advisory services we offer in Montgomery, AL include:
- Family Wealth Planning
- Financial Planning for Business Owners
- Comprehensive Financial Planning
- Retirement Income Planning
- Investment Planning
- Retirement Financial Planning
- Independent Financial Advisor
- Roth Conversion
- Investment Management
- 401(k) Audit
Call Correct Capital for Your Self-Employed Retirement Plan in Montgomery, AL
You don't see your business as "just a business", and your Montgomery, AL financial advisors should provide 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. All our clients in Montgomery, AL benefit from our I.O.U. promise: all of the advice you get from us will be independent, objective, and unbiased. To take the first step on your self-employment retirement plan, contact Correct Capital now at 877-930-401k or contact us online.
