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Retirement plan options for a contract employee

When you are a contract employee and receive 1099 income, you are considered to be a sole proprietor earning self-employed income. You are both your employer and employee. That means it is on you to create your own retirement plan. Lucky for you, there are plenty of options.

Available to the self employed only –  choose one


  • Employer contributions only
  • Can defer a maximum of roughly 20% of your net business profit
  • Max 2017 contribution is $54,000
  • Establishment deadline for 2017 contribution is April 17, 2018

Self-employed 401(k)

  • Employee and employer contributions
  • Employer contributions are the same limits of SEP (roughly 20% of your net business profit)
  • Additionally, employee contributions can be made up to $18,000 in 2017
  • An additional $6,000 employee catch-up contribution is available for those 50 years or older
  • Max total contribution in 2017 is $54,000 ($60,000 if you’re over 50)
  • Establishment deadline for 2017 contribution is December 31, 2017


$150,000 net business profit (after deductions including self-employment tax)

  • SEP IRA: can make a maximum $28,021 contribution
  • Self-employed 401(k): can make a max $28,021 employer profit sharing contribution and a maximum $18,000 employee contribution for a total $46,021 ($52,021 if you’re over 50)

$300,000 net business profit

  • SEP IRA: capped with a maximum $54,000
  • Self-employed 401(k): capped with a maximum $54,000 total contribution (again, $60,000 if you’re over 50)

Available to anyone with earned income –  choose one

Traditional IRA

  • Max contribution is $5,500; $6,500 if you’re 50 +
  • No income limits to make contribution
  • Deductible on your 2017 taxes if AGI is $62,000 or less (individual filer) and $99,000 or less (married joint filer); taxed when you withdraw

Roth IRA

  • Max 2017 contribution is $5,500; $6,500 if you’re 50 +
  • Can make full 2017 contribution if MAGI is $118,000 or less (individual filer); $186,000 or less (married joint filer)
  • No tax benefits on your 2017 taxes; grows tax free


Get in touch with your financial advisor to discuss how a retirement plan could work in your situation. For example, if you receive both W2 income and 1099 income, you may have even more choices to make.

And please let us know if we can clarify or translate anything.



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