What retirement account options do self-employed people actually have? Self-employed workers can generally choose between a SEP-IRA, a Solo 401(k), a SIMPLE IRA, or a traditional or Roth IRA, each with different contribution mechanics, complexity, and limits. There's no single 'best' plan — the right one depends on how much you want to contribute, whether you have employees, and how much administrative work you're willing to take on.

Article Summary

  • Without an employer automatically enrolling you in a 401(k), building retirement savings as a self-employed person only happens if you deliberately set up and fund an account yourself.
  • A Solo 401(k) generally allows higher total contributions than a SEP-IRA at the same income level, because it counts both an 'employee' and an 'employer' contribution from the same person.
  • The moment you hire even one non-owner employee, a Solo 401(k) is typically off the table, and a SEP-IRA requires contributing proportionally for eligible employees too — the calculus changes as soon as you're not the only person on payroll.

"Time is your friend; impulse is your enemy."

John Bogle

One of the quieter costs of leaving a traditional job is losing the retirement plan that came with it — the automatic paycheck deduction, the employer match, the plan administrator who handled all the paperwork. Self-employment doesn't remove your need to save for retirement; it just removes the scaffolding that used to make it happen without a decision. Every dollar that goes into a retirement account now requires you to choose the account, open it, and fund it yourself, which is exactly why so many self-employed people put it off. The plans below aren't complicated once you see them side by side — the hard part is just picking one and starting.

The SEP-IRA: Simple, Flexible, Employer-Funded

A Simplified Employee Pension IRA is often the first plan self-employed people encounter because it's genuinely easy to set up, usually through any major brokerage, with minimal paperwork and no annual filing requirement in most cases. Contributions are treated as employer contributions calculated as a percentage of net self-employment income, and you can decide how much to contribute each year, including contributing nothing in a lean year, which makes it attractive for variable income.

The tradeoff is that a SEP-IRA doesn't allow catch-up contributions for older savers and doesn't have a Roth option in the way a Solo 401(k) can. It's a strong fit for a solo operator who wants simplicity and flexibility over maximizing every possible contribution dollar.

The Solo 401(k): More Contribution Room, More Structure

A Solo 401(k), also called an individual or one-participant 401(k), is available to a business owner with no employees other than a spouse. It allows you to contribute in two capacities — as the 'employee' (an elective deferral based on compensation) and as the 'employer' (a profit-sharing contribution based on business income) — which typically permits a higher total contribution than a SEP-IRA at comparable income. Many providers also offer a Roth option for the employee-deferral portion, letting you split future tax treatment.

The cost of that extra room is more paperwork: once plan assets grow past a threshold commonly cited as $250,000, the IRS requires an annual Form 5500-EZ filing. It's still manageable for most solo filers, just not quite as hands-off as a SEP-IRA.

SIMPLE IRA and Traditional/Roth IRA: The Other Options

A SIMPLE IRA sits between a SEP-IRA and a full 401(k) in complexity, and is generally more relevant once you have a small number of employees you want to include in a retirement plan without the administrative load of a full 401(k). It requires either a matching or a fixed contribution to eligible employees, so it's less commonly the first choice for a solo freelancer with no staff.

A traditional or Roth IRA, funded outside of any business structure, remains available to every self-employed person regardless of which business retirement plan they also use, though it carries much lower annual contribution limits than a SEP-IRA or Solo 401(k). It's often used to supplement a SEP-IRA or Solo 401(k), or as a starting point before setting up something more involved.

A Framework for Choosing

If you want the simplest possible setup and your income varies a lot year to year, a SEP-IRA is usually the easiest starting point. If you're consistently profitable and want to contribute as much as possible, or you specifically want a Roth option for part of your retirement savings, a Solo 401(k) is usually worth the modest extra paperwork. If you've started hiring people and want to offer a retirement benefit without taking on a full 401(k) plan's complexity, a SIMPLE IRA is the more natural fit.

Whichever you pick, the plan needs to actually be opened and funded before certain deadlines tied to your tax filing, and some plans (notably the Solo 401(k)'s employee-deferral portion) need to be established before the calendar year ends, not just before you file taxes. Talking to a tax professional once, when you first set this up, is usually worth more than any amount of solo research — the deadlines and contribution formulas are exactly the kind of detail that's easy to get subtly wrong.