Article 5 min

Planning for Retirement When You’re Your Own Boss

Self-employed individuals don’t have a built-in employer retirement plan — but that doesn’t mean they’re short on options. Whether you're freelancing, running your own business, or consulting, there are several retirement plans that can help you save for the future while enjoying tax benefits along the way.

Summary

💼 Traditional or Roth IRA

Individual Retirement Accounts (IRAs) are one of the most accessible ways for self-employed individuals to begin saving for retirement. With a 2025 contribution limit of $7,000 ($8,000 for those 50 or older), they’re a great starter plan for those new to self-employment or transitioning from a previous job. Traditional IRAs allow for potential tax deductions today, while Roth IRAs offer tax-free withdrawals in retirement. However, Roth IRAs have income eligibility limits, so not everyone can contribute. These accounts are easy to open through most online brokers and don’t require any employer setup or reporting to the IRS.

Takeaways:

• Ideal for newcomers or those transitioning from a traditional job.

• Offers tax flexibility based on income and retirement goals.

• Simple to open and manage with minimal paperwork.

Key Terms

• IRA: Individual Retirement Account, a retirement savings account with tax advantages.

• Roth IRA: An IRA where contributions are made after-tax and withdrawals are tax-free.

• Traditional IRA: An IRA that allows for potentially deductible contributions and taxed withdrawals.

📈 Solo 401(k)

A Solo 401(k), also known as a one-participant 401(k), is perfect for business owners without employees (except possibly a spouse). It offers one of the highest contribution limits—up to $70,000 in 2025, plus catch-up contributions if you're over 50. This plan lets you contribute both as the employee and the employer, maximizing your tax-deferred savings potential. Solo 401(k)s are flexible for high-income years and can also be opened as Roth versions for after-tax contributions. However, you can’t contribute if you have employees (except a spouse), and once the account exceeds $250,000, you’ll need to file annual paperwork with the IRS.

Takeaways:

• Great for those with high income and no employees.

• Allows large contributions in strong business years.

• Available in traditional or Roth formats.

Key Terms

• Solo 401(k): A retirement plan for self-employed individuals with no employees.

• Catch-up contribution: An additional contribution allowed for those over age 50.

• Roth Solo 401(k): A version with after-tax contributions and tax-free withdrawals.

💼 SEP IRA

The Simplified Employee Pension (SEP) IRA is another powerful option for the self-employed, especially those with few or no employees. With a 2025 limit of $70,000, contributions are based on 25% of your net self-employment income. Unlike Solo 401(k)s, SEP IRAs are easier to maintain and don’t require annual IRS filings. However, if you do have employees, you must contribute an equal percentage of salary for them as you do for yourself. The Secure 2.0 Act has now made Roth SEP IRA contributions possible as well.

Takeaways:

• High contribution limits with minimal administrative overhead.

• Requires equal percentage contributions for all eligible employees.

• Now allows Roth contributions for tax-free retirement income.

Key Terms

• SEP IRA: A retirement plan for self-employed individuals and small business owners.

• Roth SEP IRA: A version of the SEP that allows for after-tax contributions and tax-free withdrawals.

• Net self-employment income: Net profit minus half self-employment tax and your SEP contributions.

🧾 SIMPLE IRA

The Savings Incentive Match Plan for Employees (SIMPLE) IRA is designed for businesses with up to 100 employees. While the contribution limits ($16,500 in 2025) are lower than other plans, the SIMPLE IRA allows both employer and employee contributions. It requires mandatory matching or nonelective contributions to employee accounts, and early withdrawals—especially within the first two years—can incur hefty penalties. A 401(k) version of SIMPLE exists, with slightly more flexibility and loan options but requires additional administration.

Takeaways:

• Good option for businesses with employees.

• Lower contribution limits but simpler setup than full 401(k) plans.

• Watch for early withdrawal penalties in the first two years.

Key Terms

• SIMPLE IRA: A retirement plan designed for small businesses with up to 100 employees.

• Matching contribution: Employer contributions that match a percentage of employee deferrals.

• Nonelective contribution: Employer contributes a set percentage regardless of employee participation.

🏦 Defined Benefit Plan

A defined benefit plan works much like a traditional pension — you set it up to receive a specific payout in retirement. It’s best suited for high earners who want to save aggressively and consistently. Contribution amounts are based on age, retirement goals, and expected returns, and they require an actuary to calculate annual funding. These plans are costly to set up and maintain, but for someone nearing retirement and looking to supercharge savings, they can offer massive tax deferral opportunities. However, they come with strict funding commitments and aren’t ideal if your income fluctuates.

Takeaways:

• Best for high-income earners with stable finances.

• Acts like a self-funded pension plan with guaranteed payouts.

• Expensive to set up and maintain, but allows significant contributions.

Key Terms

• Defined Benefit Plan: A retirement plan promising a specific payout at retirement.

• Actuary: A professional who calculates financial risks and required contributions for defined benefit plans.

• Guaranteed income: A fixed stream of payments in retirement, typical of pension-like plans.

Conclusion

If you're self-employed, you have a variety of retirement savings tools at your disposal — from IRAs and Solo 401(k)s to SEP and SIMPLE plans. Choosing the right one depends on your income level, business structure, and whether or not you have employees. Starting early and making consistent contributions can help ensure a financially secure retirement, even without an employer-sponsored plan.