Retirement Plans for the Self-Employed

Saving for retirement is important for all of us. If you are employed by a private or public company, government agency, or in the nonprofit sector, your employer likely offers a retirement plan for their employees. A 401(k) is a common option in the private sector while public sector employees might be covered by a 403(b).

If you are self-employed, either on a full-time or part-time basis, it’s important that you focus on funding your retirement. There are a number of options and opportunities you can consider. Self-employment can mean someone who works on a solo basis, or someone who owns their own business with employees. We will be focusing on those who are solo self-employed in this article.

Part-time versus full-time self-employment

It is also not uncommon for people to have a regular full-time job where they are employed by an employer, and also have a side gig where they are self-employed.

It can be a good idea to establish a self-employed retirement plan to allow contributions from this self-employment income. However, it's important to know that any contribution limits on various types of retirement plans will apply to both any workplace retirement plans you participate in and any self-employed retirement plan. It is a good idea to discuss this with your financial advisor.

Solo 401(k)

A solo 401(k), also known as an individual 401(k), works much like an employer-sponsored 401(k) except that it's limited to business owners and spouses who are involved in the business. Non-owner employees of a business, if there are any, cannot participate in the plan.

Employee contribution limits are the same as with an employer sponsored 401(k). For 2026 the limits are:

• $24,500
• Catch-up contributions of $8,000 for those who are 50 or older
• For 2026, the catch-up contribution limit for those ages 60 to 63 is $11,250, this will likely be indexed for inflation in subsequent years.
• 2026 catch-up contributions for those who are 50 or over must be made to a Roth option in the plan, if your income was $150,000 or more for 2025.

You can also make employer profit sharing contributions of up to 25 percent of your compensation from self-employment. For 2026, this brings the total combined contribution limits to $72,000 for those under 50, $80,000 for those ages 50-59 and 64 and above, and $83,250 for those ages 60 to 63.¹

A solo 401(k) can be opened as either or both a Roth or traditional account, and it must be opened by the end of the calendar year for which contributions will be made. Employer contributions can be made up until your tax filing date including extensions.

Pros of a solo 401(k):

• High annual contribution limits
• Allows for both Roth and traditional components
• Most custodians allow for a wide range of investment options

Cons of a solo 401(k):

• Requires the filing of IRS form 5500 if the plan has $250,000 or more in assets.

Note that if your business expands to include non-owner and/or non-spousal employees, these employees cannot participate in the solo 401(k). In this instance, you will likely need to consider a different type of retirement plan for the business.

SEP-IRA

A SEP-IRA is a type of self-employed retirement plan that can only be funded with employer contributions. For 2026, the contribution limits are the lower of 25 percent of compensation up to a maximum of $72,000.

A SEP-IRA can be established as either a traditional or Roth SEP-IRA, and be opened and funded up until the self-employed business owner’s tax filing date, including extensions.²

Pros of a SEP-IRA:

• Easy to establish
• Establishment and funding allowed until the business owner’s tax filing date including extensions

Cons of a SEP-IRA:

• No employee deferral contributions are allowed, only employer contributions are allowed.
• Since contributions are tied to the level of compensation, in years of lower earnings the business owner’s level of contributions will be limited.

Note that if the business does expand to include non-owner employees at some point in the future, these employees would be eligible to participate. However, at that point in time, the business owner should evaluate if the SEP-IRA is still the right type of plan for the business.

SIMPLE IRA

A Savings Investment Match Plan for Employees (SIMPLE) IRA is a small business retirement plan that allows participants to make contributions to their account either pre-tax via a traditional SIMPLE or after-tax via a Roth version. Designed as an easy-to-administer plan for small companies, a SIMPLE IRA can be a good option for those working solo as well.

There are few administrative rules for a SIMPLE IRA and they can be easy to establish and maintain. Employers are required to contribute to the employee’s accounts in one of two ways:

• Match employee contributions up to 3% of their compensation.
• Contribute 2% of employee compensation to each employee’s account whether or not they contribute to the plan.

This holds true for those working solo as the only employee of their company.

For 2026 the contribution limits are:

• For those under 50 the limit is $18,100.
• For those who are 50 or over, there is an additional $3,850 in catch-up contributions, bringing their total contribution limit to $21,950.
• The catch-up contribution limit for those who are ages 60 to 63 is $5,250, bringing their total contribution limit to $23,350.
• As with a 401(k), beginning in 2026 those whose income was $150,000 or higher in 2025 are required to make their catch-up contributions to a Roth option in the SIMPLE IRA.

SIMPLE IRA pros:

• Easy to establish
• Very few administrative requirements

SIMPLE IRA cons:

• Contribution limits are lower than for a solo 401(k) and some other plans.
• Funds in a SIMPLE IRA can be rolled over to another SIMPLE IRA plan at any time. But employees, even solo business owners, must wait two years to roll their account balance over to an IRA or any other type of retirement plan.
• For solo business owners whose earnings are high, a SIMPLE IRA might not be the best choice due to the relatively low contribution limits compared to some other types of plans.

Defined benefit plan

A defined benefit plan, often referred to as a pension plan, can be an option for someone who is self-employed. The business owner makes contributions to the plan over time that are invested within the fund for the plan. Based on the terms of the plan when established, the business owner will receive a predetermined benefit if they retire at a certain time.

Defined benefit plans can offer a level of security in terms of a predetermined benefit. These plans can be costly in terms of administrative expenses and due to the fact that an actuary needs to review the plan. A defined benefit plan can be established for a solo self-employed person.³

Defined benefit plan pros:

• Provides a predictable stream of retirement income.
• Tax advantages for the business owner
• Potentially higher contribution rates

Defined benefit cons:

• Defined benefit plans can be expensive to administer and manage
• There are a number of regulatory requirements for defined benefit plans

IRA

An IRA may not normally be mentioned as a retirement plan for the self-employed, but an IRA can serve as the foundation of your retirement savings efforts. The cost to open an IRA is generally nothing or very minimal. There are very few administrative issues.

Whether you choose a traditional or Roth IRA will depend on your situation, including your income, whether you are covered by a workplace retirement plan, and other factors. Additionally, an IRA can be a good destination for retirement plan money that is rolled over from an employer plan, or a self-employment retirement plan.

For 2026, the IRA contribution limits are $7,500 with an additional $1,100 catch-up contribution available for those who are 50 or over.

IRA pros:

• A basic retirement plan
• Can be a good destination for any retirement plan rollovers

IRA cons:

• The ability to contribute may be limited by your income
• Low contribution limits

Conclusion

For those who are self-employed, having the right type of retirement plan in place can offer a way to use some of their self-employment income to save for retirement. In some cases, this can involve some tax savings as well.