Retirement Plan Options for the Self-Employed

If you’re an entrepreneur, consultant, or small business owner, you might be surprised to learn that the retirement plan options when you’re self-employed — like a SEP IRA or solo 401(k) — are very robust.

Not only do you have more options in terms of self-employed retirement plans than you might think, some of these plans come with higher contribution limits and greater tax benefits than traditional plans. That’s especially true since the passage of the SECURE 2.0 Act, which has favorably adjusted the rules of many retirement plans.

What Are Self-Employed Retirement Plans?

In some ways, self-employed retirement plans aren’t so different from regular retirement plans. You can set aside money now, select investments within the account, and continue to contribute and invest for the long term.

Similar to traditional retirement plans, there are two main categories most self-employed plans fall into:

•   Tax-deferred retirement accounts (such as traditional, SEP, or SIMPLE IRAs and solo 401(k) plans). The amount you can save varies by the type of account. The money you set aside is deductible, and you don’t pay tax on that portion of your income. You do pay taxes on the funds you withdraw in retirement.

•   After-tax retirement accounts (typically designated as Roth IRAs or Roth 401(k) accounts). Here you can also save up to the prescribed annual limit, but the money you save is after-tax income and cannot be deducted. That said, withdrawals in retirement are tax free.

A note about Roth eligibility: Roth IRAs come with income limits. If your income is higher than the prescribed limit, you may not be eligible. Roth 401(k) plans do not come with income restrictions. Details below.

Understanding Beneficiary Rules for Self-Employed Plans

The rules that apply to inherited retirement accounts are extremely complicated. If you’re the beneficiary of an IRA, solo 401(k) or other retirement account, you may want to consult a professional as terms vary widely, and penalties can apply.

Administrative Factors to Consider

When selecting a self-employed retirement plan, it’s important to weigh the set up, administrative, and IRS filing rules. Some plans are easier to establish and maintain than others.

Given that running a plan can add to your overall time and personnel costs, it’s important to do a cost-benefit analysis when choosing a retirement plan when you’re a freelancer, consultant, or small business owner.

5 Types of Self-Employed Retirement Plans

The IRS outlines a number of retirement plans for those who are freelance, self-employed, or who run their own businesses. Here are the basics.

1. Traditional and Roth IRAs

What they are: One of the most popular types of retirement plans is an IRA — or Individual Retirement Arrangement.

As noted above, there are traditional IRAs, which are tax deferred, as well as Roth IRAs, which are after-tax accounts.

Suited for: While anyone with earned income can open a traditional or Roth IRA, these accounts can also be used specifically as self-employed retirement plans. They are simple to set up; and most financial institutions offer IRAs.

That said, IRAs have the lowest contribution limits of any self-employed plans, and may be better suited to those who are starting out, or who have a side hustle, and can’t contribute large amounts to a retirement account.

Contribution limits. There is no age limit for contributing to a traditional or Roth IRA, but there are contribution limits (and for Roth IRAs there are income limits; see below).

For tax year 2025, the annual contribution limit for traditional and Roth IRAs is $7,000. These IRAs allow for a catch-up contribution of up to $1,000 per year if you’re 50 or older, for a total annual limit of $8,000.

For tax year 2026, the annual contribution limit for traditional and Roth IRAs is $7,500, while those 50 and older can make an additional catch-up contribution of up to $1,100, for a total annual limit of $8,600.

Note that your total annual combined contributions across all your IRA accounts cannot exceed those limits. So if you’re 35 and contribute $3,000 to a Roth IRA for 2025, you cannot contribute more than $4,000 to a traditional IRA in the same year, for a maximum total annual contribution of $7,000.

Remember: You have until tax day in April of the following year to contribute to an IRA. For example, you can contribute to a traditional or a Roth IRA for tax year 2025 up until April 15, 2026.

Income limits: There are no income limits for contributing to a traditional IRA, but Roth IRAs do come with income restrictions.

•   In 2025, the limit for single filers is up to $150,000 to make a full contribution. Those with incomes from $150,000 to $165,000 can contribute a reduced amount. Single individuals whose income is $165,000 or higher cannot contribute to a Roth IRA.

•   For 2026 limits for single filers are: up to $153,000; those earning $153,000 or more but less than $168,000 can contribute a reduced amount. If their income is $168,000 or higher, they cannot contribute to a Roth IRA.

•   For 2025, the income limit if you’re married, filing jointly, is up to $236,000 to make a full contribution. Those with incomes from $236,000 to $246,000 can contribute a reduced amount. If their income is $246,000 or higher, they cannot contribute to Roth.

•   For 2026, individuals who are married and file taxes jointly have an income limit up to $242,000 to make a full contribution to a Roth, and $242,000 to $252,000 to contribute a reduced amount. If their income is $252,000 or higher, they cannot contribute to a Roth.

Tax benefits: The main difference between a traditional vs. Roth IRA is the tax treatment of the money you save.

•   With a traditional IRA, the contributions you make are tax-deductible when you make them (unless you’re covered by a retirement plan at work, in which case conditions apply). Withdrawals are taxed at ordinary income rates.

•   With a Roth IRA, there are no tax breaks for your contributions, but qualified withdrawals are tax free.

Withdrawal rules: You owe ordinary income tax on withdrawals from a traditional IRA after age 59 ½. You may owe a 10% penalty on early withdrawals, i.e., before age 59 ½. There are exceptions to this rule for medical and educational expenses, as well as other conditions, so be sure to check with a professional or on IRS.gov.

The rules and restrictions for taking withdrawals from a Roth are more complex. Although your contributions to a Roth IRA (i.e., your principal) can be withdrawn at any time, investment earnings on those contributions can only be withdrawn tax-free and without penalty once the investor reaches the age of 59½ — and as long as the account has been open for at least five years (a.k.a. the 5-year rule).

Required Minimum Distributions (RMDs): You are required to take RMDs from a traditional IRA starting at age 73. You are not required to take minimum distributions from a Roth IRA account. RMD rules can be complicated, so you may want to consult a professional to avoid making a mistake and potentially owing a penalty.

2. Solo 401(k)

What it is: A solo 401(k) is a self-employed retirement plan that the IRS also refers to as a one-participant 401(k) plan. It works a bit like a regular employer-backed 401(k), except that in this instance you’re the employer and the employee. There are contribution rules for each role, but this dual structure enables freelancers and solo business owners to save more than a standard 401(k) would allow.

Suited for: A solo 401(k) covers a business owner who has no employees, or employs only their spouse.

Contribution limits:

•  As the employee: For 2025, you can contribute up to $23,500 or 100% of compensation (whichever is less), with an additional $7,500 in catch-up contributions allowed if you’re over 50, for a total of $31,000.

•  For 2026, you can contribute up to $24,500, or 100% of compensation (whichever is less), with an additional $8,000 in catch-up contributions allowed if you’re over 50, for a total of $32,500.

•  As the employer: You can contribute up to 25% of the employee’s net earnings, with separate rules for single-member LLCs or sole proprietors.

For 2025, total contributions cannot exceed a total of $70,000, or $77,500 if you’re 50 and over. For 2026, it’s $72,000 or $80,000 with the $8,000 catch-up provision.

•  Super catch-up contribution rules: For tax years 2025 and 2026, those aged 60 to 63 only can contribute up to an additional $11,250, instead of the standard $7,500, or $81,250 total for 2025, and instead of the standard $8,000, for a 2026 total of $83,250.

You cannot use a solo 401(k) if you have any employees, though you can hire your spouse so they can also contribute to the plan (and you can match their contributions as the employer), further reducing your taxable income.

Note that 401(k) contribution limits are per person, not per plan (similar to IRA rules), so if either you or your spouse are enrolled in another 401(k) plan, then the $70,000 employer + employee limit per person for 2025 ($72,000 for 2026) must take into account any contributions to that other 401(k) plan.

Income limits: There is a limit on the amount of compensation that’s allowed for use in determining your contributions. For tax year 2025 it’s $350,000; for 2026 it’s $360,000.

Tax benefits: A solo 401(k) has a similar tax setup as a traditional 401(k). Contributions can be deducted, thus reducing your taxable income and potentially the amount of tax you owe for the year you contribute. But you owe ordinary income tax on any withdrawals.

Withdrawal rules: You can take withdrawals from a solo 401(k) without penalty at age 59 ½ or older. Distributions may be allowed before that time in the case of certain “triggering events,” such as a disability (you can find a list of exceptions at IRS.gov), but you may owe a 10% penalty as well as income tax on the withdrawal.

Required Minimum Distributions (RMDs): You are required to take minimum distributions from a solo 401(k) starting at age 73. RMD rules can be complicated, so you may want to consult a professional to avoid making a mistake and potentially owing a penalty.

3. Simplified Employee Pension (or a SEP IRA)

What it is: A SEP IRA, or Simplified Employee Pension plan, is similar to a traditional IRA with a streamlined way for an employer (in this case, you) to make contributions to their own and their employees’ retirement savings. Note that when using a SEP IRA, the employer makes all contributions; employees do not contribute to the SEP.

Suited for: A key difference in a SEP IRA vs. other self-employment retirement plans is that it’s designed for those who run a business with employees. Employers have to contribute an equal percentage of salary for every employee (and you are counted as an employee). Again, employees may not contribute to the SEP IRA.

That means, as the employer, you can not contribute more to your retirement account than to your employees’ accounts (as a percentage, not in absolute dollars). On the plus side, it’s slightly simpler than a solo 401(k) to manage in terms of paperwork and annual reporting.

Contribution limits: For 2025, the SEP IRA rules and limits are as follows: you can contribute up to $70,000 ($72,000 for 2026) or 25% of an employee’s total compensation, whichever is less. Be sure to understand employee eligibility rules.

As the employer you can contribute up to 20% of your net compensation.

Note that SEP IRAs are flexible: Contribution amounts can vary each year, and you can skip a year.

Compensation limits: For tax year 2025 there is a $350,000 limit on the amount of compensation used to determine contributions; it’s $360,000 for 2026.

Tax benefits: Employers and employees can deduct contributions from their earnings, and withdrawals in retirement are taxed as income.

Withdrawal rules: You can take withdrawals from a SEP IRA without penalty at age 59 ½ or older. Distributions may be allowed before that time in the case of certain “triggering events,” such as a disability (you can find a list of exceptions at IRS.gov), but you may owe a 10% penalty as well as income tax on the withdrawal.

Required Minimum Distributions (RMDs): You are required to take minimum distributions from a SEP-IRA starting at age 73. RMD rules can be complicated, so you may want to consult a professional to avoid making a mistake and potentially owing a penalty.

New rules under SECURE 2.0: Starting in 2024, SEP IRA plans can now include a designated Roth option. But not all plan providers offer the Roth option at this time.

4. SIMPLE IRA

What it is: A SIMPLE IRA (which stands for Savings Incentive Match Plan for Employees) is similar to a SEP IRA except it’s designed for larger businesses. Unlike a SEP plan, individual employees can also contribute to their own retirement as salary deferrals out of their paycheck.

Suited for: Small businesses that typically employ 100 people or less.

Contribution limits for employers: A small business owner who sets up a SIMPLE plan has two options.

•  Matching contributions. The employer can match employee contributions dollar for dollar, up to 3%.

•  Fixed contributions. The employer can contribute a fixed 2% of compensation for each employee.

Employer contributions are required every year (unlike a SEP IRA plan), and similar to a SEP, contributions are based on a maximum compensation amount of $350,000 for 2025 and $360,000 for 2026.

Contribution limits for employees: Employees can contribute up to $16,500 to a SIMPLE plan for 2025, an additional $3,500 for those 50 and up; $17,000 for tax year 2026, and a $4,000 standard catch-up contribution.

2025 and 20206 Super catch-up contributions: For savers age 60 to 63 only, a SECURE 2.0 provision allows an extra contribution amount of $5,250 instead of the standard $3,500 catch-up contribution in 2025, and $5,250 instead of the standard $4,000 in 2026.

Tax benefits: Employers and employees can deduct contributions from their earnings, and withdrawals in retirement are taxed as income.

Withdrawal rules: Withdrawals are taxed as income. If you make an early withdrawal before the age of 59 ½ , you’ll likely incur a 10% penalty much like a regular 401(k); do so within the first two years of setting up the SIMPLE account and the penalty jumps to 25%.

Required Minimum Distributions (RMDs): You are required to take minimum distributions from a SEP-IRA starting at age 73. RMD rules can be complicated, so you may want to consult a professional to avoid making a mistake and potentially owing a penalty.

New rules under SECURE 2.0: Starting in 2024, the federal law permits employers that provide a SIMPLE plan to make additional contributions on behalf of employees, as long as the amount doesn’t exceed 10% of compensation or $5,000, whichever is less. This amount will be indexed for inflation.

Also under these new rules, student loan payments that employees make can be treated as elective deferrals (contributions) for the purpose of the employer’s matching contributions.

In addition, SIMPLE plans can now include a designated Roth option, but not all plan providers offer the Roth option at this time.

5. Defined-Benefit Retirement Plan

Another retirement option you’ve probably heard about is the defined-benefit plan, or pension plan. Typically, a defined benefit plan pays out set annual benefits upon retirement, usually based on salary and years of service.

Typically pension plans have been set up and run by very large entities, such as corporations and federal and local governments. But it is possible for a self-employed individual to set up a DB plan.

These plans do allow for very high contributions, but the downside of trying to set up and run your own pension plan is the cost and hassle. Because a pension provides fixed income payments in retirement (i.e. the defined benefit), actuarial oversight is required annually.

The Takeaway

When you’re an entrepreneur, freelance, or otherwise self-employed, it may feel as if you’re out on your own, and your options are limited in terms of retirement plans. But in fact there are a number of options for individuals to consider, including various types of IRAs and a solo 401(k).

In some cases, these plans can be just as robust as employer-provided plans in terms of contribution limits and tax benefits, or even more so. Also, be aware that some plans now offer additional contribution amounts, thanks to SECURE 2.0.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA or an automated robo IRA, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.