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Retirement Plans for the Self-Employed: SEP-IRA, SIMPLE IRA, or Solo 401(k)
When you work for yourself, no employer sets up your retirement. The plan you choose can cut this year’s taxes and build your future at the same time. Here is how the three best options compare.
Planning for retirement is essential, and it is entirely on you when you are self-employed. The good news is that the retirement plans for the self-employed do double duty: they lower your taxable income now and build long-term savings for later.
For freelancers, independent contractors, and business owners, the right account is one of the most powerful tax moves available. Below are the three best options, how they compare, and how to pick the one that fits you. Contribution limits change every year, so confirm the current numbers with the IRS or your CPA before you fund an account.
Why retirement plans for the self-employed matter
Contributing to a retirement plan gives you two wins at once. You lower your current taxable income, and you build security for the future. Because the contributions are generally tax-deductible, every dollar you set aside can also trim your tax bill, which makes these accounts a cornerstone of self-employed tax planning. The IRS keeps a helpful overview of retirement plans for the self-employed.
SEP-IRA: simple, flexible, and high-limit
A SEP-IRA is one of the easiest plans to set up and run. You can contribute up to 25% of your compensation (roughly 20% of net self-employment income) up to an annual IRS limit, and the contributions are tax-deductible.
- High contribution limits, well above a standard IRA.
- Flexible: you choose how much to contribute each year based on your income.
- Minimal paperwork. You open the account and file Form 5305-SEP.
It is a strong fit for solo earners with variable income. See the IRS guide to SEP plans for current limits.
SIMPLE IRA: easy when you have a small team
The SIMPLE IRA suits self-employed people and small businesses that want an affordable plan, especially if you have a few employees.
- Straightforward to set up and maintain.
- Tax-deductible contributions, with salary deferrals plus an employer contribution.
- The employer either matches up to 3% of pay or contributes 2% for eligible employees, with a catch-up for those 50 and older.
You set it up with Form 5304-SIMPLE or 5305-SIMPLE. The IRS details the rules for the SIMPLE IRA plan.
Solo 401(k): the most flexible, highest-limit option
The Solo 401(k) is built for sole proprietors with no employees other than a spouse, and it offers the highest savings potential.
- You contribute as both the employee and the employer, which pushes the combined limit well above the other plans.
- A catch-up contribution is available for those 50 and older.
- Many plans allow a loan from the account and offer broad investment choices.
- Significant tax deductions and tax-deferred growth.
See the IRS overview of one-participant 401(k) plans for the current limits.
Key takeaway
The best plan is the one you will actually fund. SEP-IRA for simplicity and variable income, SIMPLE IRA if you have a small team, Solo 401(k) when you want to save the most and have no employees.
A self-employed retirement plan is one of the few moves that lowers your taxes today and pays you back for decades.
How to choose the right plan
Start with your situation. If you want simplicity and your income swings year to year, a SEP-IRA is hard to beat. If you have a few employees and want an easy plan for everyone, look at the SIMPLE IRA. If it is just you (or you and a spouse) and you want to maximize contributions, the Solo 401(k) usually wins. Because the dollar limits and deadlines shift each year, this is worth confirming as part of proactive tax planning. For the bigger picture, see our guide to advanced tax planning strategies and how to lower your self-employment tax.
Frequently asked questions
Quick answers about retirement plans for the self-employed.
What is the best retirement plan for a self-employed person?
It depends on your situation. A SEP-IRA is best for simplicity and variable income, a SIMPLE IRA works well if you have a small team, and a Solo 401(k) usually allows the highest contributions when it is just you or you and a spouse. All three are tax-deductible and reduce your taxable income.
What is the difference between a SEP-IRA and a Solo 401(k)?
A SEP-IRA is funded only by the business and is very simple to run. A Solo 401(k) lets you contribute as both the employee and the employer, which usually allows a higher total contribution, and many plans add features like a loan option. The Solo 401(k) fits owners with no employees other than a spouse.
Can I open a self-employed retirement plan if I have employees?
Yes, but it affects your choice. A SEP-IRA and a SIMPLE IRA can cover eligible employees, which means you contribute for them too. A Solo 401(k) is only for businesses with no employees other than a spouse. If you have a team, the SEP-IRA or SIMPLE IRA is usually the right path.
How much can I contribute to a self-employed retirement plan?
The limits are generous and change each year. A SEP-IRA allows up to 25% of compensation, roughly 20% of net self-employment income, up to an annual cap. A Solo 401(k) usually allows even more because you contribute as both employee and employer. Check the current IRS limits or ask your CPA before funding.
Are self-employed retirement contributions tax-deductible?
Generally yes. Contributions to a SEP-IRA, SIMPLE IRA, or traditional Solo 401(k) are typically tax-deductible, which lowers your taxable income for the year. The savings grow tax-deferred until you withdraw them in retirement, so you get a benefit now and later.
When do I need to set up a self-employed retirement plan?
Deadlines vary by plan, and some accounts must be opened or funded by your tax filing deadline or by year-end to count for that year. Because the rules differ between a SEP-IRA, SIMPLE IRA, and Solo 401(k), confirm the deadline for your chosen plan early so you do not miss the window.
Can I switch retirement plans later?
Yes. As your income or team changes, you can move to a different plan that fits better, and balances can often be rolled over. Many owners start with a SEP-IRA for simplicity and move to a Solo 401(k) as they look to contribute more. A CPA can help you transition without a tax surprise.
Written by
Nadia Rodriguez, CPA, CTC
CPA since 2009 · Master’s in Taxation · Certified Tax Coach · National speaker (IRS Tax Forum, AICPA Engage)
Tax strategist serving small business and S-corp owners in Dallas-Fort Worth and nationwide. She helps owners stop overpaying, capture every deduction, and plan ahead with confidence. Servicios en español.
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This article is general information, not individualized tax advice. Contribution limits and deadlines change each year, so confirm current rules with a CPA before acting.