Being self-employed comes with a ton of benefits. You’ve built a personal brand and business that’s brought you tremendous freedom and flexibility. You set your own schedule, choose your clients, and are in control of your professional destiny.
For all the perks of self-employment, there are tradeoffs. Independence comes with challenges, particularly when you start planning for retirement. Without an employer-sponsored 401(k) or pension plan, you’re solely responsible for securing your financial future.
We’ve known many self-employed professionals who are so focused on growing their business, planning for their retirement takes a back seat. The good news is that there are several powerful retirement options designed specifically for the self-employed.
In this article, we outline several key self-employed retirement options that will help guide you as you plan for a secure financial future.
Getting Started with Self Employment Retirement
What retirement options are available for self-employed individuals?
- Solo 401(k)s: High contribution limits with both employer and employee contributions
- SEP IRAs: Simple setup with generous contribution limit
- Traditional/Roth IRAs: Lower contribution limits, but still valuable tax advantage
- SIMPLE IRAs: Good for small businesses with up to 100 employees
What are the key considerations when choosing a self-employed retirement plan?
- Business structure (sole proprietorship, partnership, corporation)
- Income level and variability
- Administrative complexity and paperwork requirements
- Current vs. future tax benefits
- Future growth plans and potential employees
What additional retirement planning strategies should self-employed individuals consider?
- Diversification beyond your business assets
- Strategic tax planning to maximize deductions
- Health Savings Accounts (HSAs) for medical expenses
- Professional financial guidance for personalized planning
Why Retirement Planning Matters for the Self-Employed
Retirement planning for self-employed individuals often includes putting your head down and driving your business full steam ahead. It’s an integral part of your financial strategy that often gets overlooked in the hustle of running your own business. As a self-employed professional, you’re responsible for your day-to-day operations as well as securing your financial future. Starting early and being strategic can make a significant difference in your financial security later in life.
Aside from the obvious downsides later in life, failing to integrate retirement planning into your financial strategy can result in the loss of capital in the immediate term in the form of greater tax liability and unrealized investment gains. Even if you’re well into your career, it’s important to start planning for retirement now to make the most of your current earning potential.
Self-Employed Retirement Plans Overview
Solo 401(k) Plans: Maximize Contributions and Flexibility
A Solo 401(k), also known as an individual 401(k), is designed for business owners with no employees other than themselves and a spouse, if applicable. These plans offer high contribution limits and the ability to make contributions as both employer and employee.
- Contribution Limits: For 2025, you can contribute up to $23,000 as an employee (or $30,500 if you’re 50 or older), plus up to 25% of your business’s net earnings as an employer contribution, with a combined maximum of $69,000 ($76,500 if you’re 50 or older).
- Tax Advantages: Traditional Solo 401(k) contributions are tax-deductible, reducing your current taxable income, while earnings grow tax-deferred until withdrawal. Many providers also offer Roth Solo 401(k) options, which offer tax-free growth and withdrawals in retirement.
- How to Open: You can establish a Solo 401(k) through many major financial institutions. You’ll need your Employer Identification Number (EIN) and must complete plan documents. These plans require annual reporting to the IRS once your plan assets exceed $250,000.
SEP IRAs: Simple and Tax-Efficient
Simplified Employee Pension (SEP) IRAs are popular among self-employed individuals and business owners with few (or no) employees due to their simplicity and high contribution limits.
- Contribution Limits: You can contribute up to 25% of your net self-employment earnings, with a maximum of $69,000 for 2025.
- Tax Advantages: Contributions are tax-deductible, and investments grow tax-deferred until withdrawal in retirement under a traditional account.
- How to Open: SEP IRAs are easy to establish at most financial institutions with minimal paperwork and no annual filing requirements. You can choose between traditional and Roth contributions to SEP IRAs.
Traditional and Roth IRAs: Supplemental Flexibility
Individual Retirement Accounts (IRAs) are not specifically designed for the self-employed, but they do offer tax advantages and flexibility that can complement other retirement savings strategies.
- Contribution Limits: For 2025, you can contribute up to $7,000 ($8,000 if you’re 50 or older), regardless of how much you earn from self-employment.
- Tax Advantages: Traditional IRA contributions may be tax-deductible (subject to income limits if you or your spouse has access to a workplace retirement plan), while Roth IRA contributions are made with after-tax dollars but grow tax-free and can be withdrawn tax-free in retirement.
- How to Open: IRAs can be opened at virtually any financial institution, including banks, brokerages, and robo-advisors.
SIMPLE IRA: Best for Small Business Owners with Employees
Savings Incentive Match Plan for Employees (SIMPLE) IRAs are a popular option for small business owners with fewer than 100 employees.
- Contribution Limits: As a self-employed business owner, you have two roles: employee and employer. In your employee role, you can contribute up to $16,000 in 2025. In your employer role, you must also make one of these mandatory contributions:
- A contribution that matches your employee’s contributions (up to 3% of their compensation.)
- A flat 2% of each employee’s compensation, regardless of whether your employees make contributions
- Tax Advantages: Your contributions to a SIMPLE IRA reduce your current taxable income. Your investments grow tax-deferred until withdrawal in retirement, when they’ll be taxed as ordinary income. If you have employees, any contributions you make to their accounts can be claimed as a business expense.
- How to Open: SIMPLE IRAs require more paperwork than SEP IRAs but less than Solo 401(k)s. They can be established at most financial institutions.
Key Considerations for Self-Employed Individuals
Diversification
It’s really important to diversify your retirement savings beyond your business. This might include a mix of stocks, bonds, real estate, and other investments to dilute risk and potentially increase returns.
Many self-employed individuals make the mistake of viewing their business as their retirement plan, expecting to sell it or receive ongoing income after they’ve retired. This can be one part of your strategy, but having diversified retirement accounts provides added security.
Tax Planning
Self-employed individuals have unique tax considerations. Maximizing deductions and timing your income can significantly impact your retirement savings strategy.
For instance, in years with higher income, you might contribute more to tax-deductible retirement accounts to reduce your current tax burden. In lower-income years, you might consider Roth conversions, paying taxes at a lower rate for tax-free growth.
Health Savings Accounts (HSAs)
If eligible (by having a high-deductible health plan), HSAs can serve as an additional tax-advantaged savings vehicle for healthcare costs in retirement.
HSAs offer a triple tax advantage: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. After age 65, you can also withdraw funds for non-medical expenses, paying only ordinary income tax with no penalty.
While HSAs are a useful tool, if your business structure is anything besides a sole proprietorship or a single-member LLC, there is a maze of restrictions that may reduce the tax benefits of utilizing an HSA while also introducing new, unwanted complexity.
How To Choose A Self-Employed Retirement Plan
You’ll need to carefully consider several key factors specific to your situation in order to select the optimal retirement plan.
Business Structure
The type of entity you operate – such as a sole proprietorship, partnership, or corporation – can influence which retirement plan makes the most sense. For example, Solo 401(k)s work well for sole proprietors with no employees, while corporations might benefit from the flexibility of SEP IRAs or the structure of a SIMPLE IRA.
Contribution Limits and Tax Benefits
If your priority is maximizing your contributions, a Solo 401(k) is typically a good choice due to its dual contribution structure. SEP IRAs are a simple option with generous limits. Traditional and Roth IRAs provide tax benefits that can compliment many retirement plans.
Income Variability
If your earnings are inconsistent, you might prefer plans with flexible contribution requirements. SEP IRAs don’t mandate annual contributions, which makes them suitable for variable income streams. In contrast, SIMPLE IRAs require employer contributions, which could be challenging in leaner years.
Administrative Requirements
Consider how much paperwork and ongoing maintenance you’re willing to manage. SEP IRAs have minimal administrative burdens, while Solo 401(k)s require more documentation and annual reporting once assets exceed $250,000.
Future Business Growth
Your plans for expansion matter. If you anticipate hiring employees in the near future, some plans like Solo 401(k)s would need to be converted. With a SEP IRAs, you would need to plan for the added employee contributions for all eligible employees.
Working with a financial advisor who specializes in self-employed retirement planning can help you navigate these considerations. An experienced advisor can analyze your specific business situation, income patterns, and long-term goals to recommend the most appropriate retirement strategy.
Next Steps: How to Secure Your Retirement as a Self-Employed Professional
Retirement planning is just as important as growing your business. The right plan depends on your income, tax situation, and long-term goals. If you’re unsure which option is best, consulting a financial professional can help you make confident, informed decisions.
At SK Wealth, we specialize in helping self-employed professionals navigate complex retirement planning decisions. Our Integrated Financial Advantage™ approach ensures your retirement strategy aligns with your business structure and personal goals—giving you clarity and control over your future.
Ready to take the next step? Let’s talk.
