What Retirement Plans Are Available If You’re Self-Employed?

If you're self-employed with no employees, you have four main tax-advantaged options: a Solo 401(k), a SEP IRA, a SIMPLE IRA, and a traditional or Roth IRA. This applies whether you're a sole proprietor, a single-member LLC owner, an independent contractor, a partner in a business, or a freelancer or consultant.

For most self-employed people without staff, the real choice comes down to the Solo 401(k) versus the SEP IRA, because those two allow by far the largest contributions.

But before you get lost comparing account types, it's worth saying that none of this matters much if you don't know what you're actually saving toward. Contribution limits tell you the ceiling, not the target. Whether $24,500 a year gets you to a comfortable retirement at 65, or whether you actually need to be maxing out every account available plus a taxable brokerage on top, depends entirely on your goals, your timeline, and what "enough" looks like for you. That's the bigger business owner retirement planning conversation that needs to be had first.

Now, here’s a quick overview of some of your retirement plan options:

Account	Best fit	Main limitation
Solo 401(k)	Self-employed people with no employees who want the highest possible contribution and a Roth option	Not available once you hire a non-spouse full-time employee
SEP IRA	Those who want simplicity, or who may hire staff later	Employer-funded only; no employee deferrals, no catch-up contributions
SIMPLE IRA	Solo earners with modest, steady income, or small businesses with less than 100 employees	Lower contribution ceiling than a Solo 401(k) or SEP, and the employer contribution is mandatory every year
Traditional / Roth IRA	Everyone, as a supplement	Much lower contribution limit

What’s the Maximum a Self-Employed Individual Can Contribute in 2026?

For 2026, the highest contribution limits for self-employed are provided through either a Solo 401(k) or a SEP IRA. These offer a limit of up to $72,000 once both employee and employer contributions are combined (assuming you’re playing both of these roles here).

In a Solo 401(k), you contribute as both employee and employer: up to $24,500 as an employee deferral, plus roughly 20% of net self-employment income as the employer, capped at that $72,000 total.

Retirement Plan Type	Contribution Limit 2026
Solo 401(k) employee deferral	$24,500
Solo 401(k) catch-up, age 50+	$8,000 (total deferral $32,500)
Solo 401(k) catch-up, ages 60–63	$11,250 (total deferral $35,750)
Total solo 401(k) annual additions (employee + employer)	$72,000
SEP IRA maximum	25% of compensation, up to $72,000
Traditional or Roth IRA	$7,500, plus $1,100 catch-up at age 50+
SIMPLE IRA employee deferral	$17,000, plus $4,000 catch-up at 50+ (employer match/nonelective is separate and mandatory, including for yourself if you're solo)

Source: IRS 2026 contribution limits (Notice 2025-67)

Here's a detail that trips up a lot of sole proprietors. When you see that you can contribute up to "25% of compensation" such as with the SEP IRA, that's true if you pay yourself a W-2 salary through an S corp. If you're a sole proprietor or single-member LLC filing a Schedule C, your effective employer contribution works out to roughly 20% of net self-employment income, because the calculation is circular — the contribution itself reduces the income it's based on, and you also subtract half of your self-employment tax first. The same math applies to the employer side of a Solo 401(k), which uses the identical net-earnings formula.

A SIMPLE IRA works differently: the IRS calculates your net earnings before backing out your own SIMPLE contribution, so the 3% match or 2% nonelective rate applies straightforwardly — no reduced-rate table required.

Which Retirement Plan Is Best for the Self-Employed?

For most self-employed people with no employees, a Solo 401(k) is the stronger choice. It allows a larger contribution at the same income level, offers a Roth option a SEP IRA doesn't, and permits catch-up contributions after 50. A SEP IRA for self-employed savers wins on simplicity, and on flexibility if you expect to hire. (If your income is modest and steady, don't forget the SIMPLE IRA option covered above — it's a real third choice, just not usually the top one at moderate-to-higher income levels.)

The reason the Solo 401(k) usually lets you save more is structural. In a SEP, every dollar has to come from the employer side — a percentage of income. In a Solo 401(k), you get an employee deferral first, and then the employer percentage on top. At moderate income levels, that difference is dramatic.

Picture a self-employed worker with $100,000 in net self-employment income:

• With a SEP IRA, roughly 20% of that income is the ceiling — around $20,000.
• With a Solo 401(k), you could defer $24,500 as the employee, then add roughly 20% as the employer on top — putting you meaningfully higher, with the same income.

The SEP only catches up at high incomes, where the percentage alone is enough to approach the cap. That's why the practical rule of thumb looks like this:

Choose a Solo 401(k) if…	Choose a SEP IRA if…
You have no employees (a spouse is fine)	You may hire employees soon
Your income is moderate and you want to max out	Your income is high enough that 25% alone hits the cap
You are 50+ and want catch-up contributions	You want to decide the amount at tax time and skip years freely
You may want the ability to borrow from the plan	You don't want any annual filing obligations

Remember that the retirement plan option itself is just a container, not a strategy. What matters far more than which box you choose is how consistently you fill it.

 

How Do You Save for Retirement With an Irregular Income?

As a self-employed individual, your income is unlikely to be the same every month. So the best solution is to save for retirement by percentage, not by dollar amount. Rather than committing to a fixed monthly contribution that a slow quarter will break, set a percentage — 15% or 20% — and move it at the end of every month after the money arrives. In lean months you save less. In strong months you save more. The main point is that the habit never breaks.

This is the problem almost no generic retirement article addresses, and it's the single biggest reason self-employed people fall behind. A W-2 employee saves automatically and invisibly, but you have to build that discipline in for yourself.

A few things that work in practice:

• Separate the money immediately. Keep a business account, and the moment a payment lands, split it: taxes, retirement, then owner's pay. If retirement comes out before the money reaches your personal account, you never adapt your lifestyle to it. How you structure that owner's pay matters too — we cover the mechanics in our guide to paying yourself as a business owner.
• Fund a cash buffer first. The self-employed need a deeper emergency reserve than employees do — often six to twelve months of expenses, not three. Without it, the first slow quarter forces you to raid the retirement account, and early withdrawals before 59½ generally trigger income tax plus a 10% penalty. A stable reserve is what lets the retirement money stay invested. Click here for more Cash Flow and Working Capital Management tips for business owners.
• True up at year end. Many solo earners contribute steadily at a base rate, then make one larger catch-up contribution in Q4 or at filing once the year's profit is clear. That converts an unpredictable income into a predictable savings outcome in line with your annual savings goal.

The goal isn't to hit a perfect number every month, but at least to build a system that keeps working in the months when you don't feel like saving. This is also a reason why working with a financial advisor for business owners can be so helpful, since they can act as an accountability partner to help you ensure you progress towards your goals.

Should You Choose Roth or Traditional Contributions?

Traditional contributions reduce your taxable income today while Roth contributions are taxed now and can be withdrawn tax-free in retirement. For self-employed savers with volatile income, the answer often changes year to year — and that variability is an advantage, if you use it deliberately.

In a lean year, when you've dropped into a lower bracket, Roth contributions are relatively cheap — you're paying tax at a low rate to buy tax-free income later. In a banner year, when you're in a high bracket, traditional pre-tax contributions give you the biggest deduction against the highest-taxed dollars.

A Solo 401(k) supports both types, which is one of its advantages. A SEP IRA is pre-tax only, and so is a standard SIMPLE IRA in most cases, though SECURE 2.0 does allow Roth SIMPLE IRAs if you build them into the plan. 

It’s important to know that a Roth IRA has income limits — for 2026, the ability to contribute directly phases out between $153,000 and $168,000 for single filers, and between $242,000 and $252,000 for married couples filing jointly. Above those thresholds, the Roth side of a Solo 401(k) becomes more valuable, since it has no income cap.

Making the traditional vs Roth decision comes down to looking at your bracket this year against the bracket you expect in retirement — the same logic that drives retirement tax planning more broadly. 

In What Order Should You Fund Your Accounts?

Because we are considering your overall financial plan, and not just focusing on retirement, we also want to think about other accounts you might need to fund with your surplus cash. There's a sensible sequence that usually works well: cash reserve first, then the accounts with the strongest tax leverage, then taxable investing. 

A workable order of operations if you're a self-employed business owner:

1. Build the cash buffer. Six to twelve months of personal and business expenses. This is the foundation everything else stands on.
2. Fund an HSA if you have a qualifying high-deductible health plan. For the self-employed buying insurance on the open market, this is often available — and it's the only account with a triple tax advantage: deductible going in, growing tax-deferred, tax-free coming out for qualified medical costs.
3. Fund the Solo 401(k), SEP IRA, or SIMPLE IRA up to what your cash flow genuinely allows.
4. Add an IRA. A traditional or Roth IRA sits on top of your business plan — the $7,500 personal limit is separate from your employer plan limit, and funding a SEP, SIMPLE, or Solo 401(k) never reduces your IRA room. Many people leave this on the table.

One catch worth knowing: having your own SEP, SIMPLE, or Solo 401(k) counts as being "covered by a workplace retirement plan" in the IRS's eyes, even though you're both the employer and the only employee. That means your ability to deduct a traditional IRA contribution phases out at higher incomes — for 2026, between $81,000 and $91,000 of MAGI if you're single, or $129,000 to $149,000 if you're married filing jointly. Above those thresholds, you can still contribute to a traditional IRA, it just won't be deductible, so a Roth IRA (with its own separate income limits) often makes more sense at that point.

1. Invest the rest in a taxable brokerage account. No contribution limit, full liquidity, and useful if you want to retire before 59½.

That last point matters more for the self-employed than most people realize. Plenty of solo earners want the option to slow down at 55 or 58 rather than stop cold at 67. Money locked entirely in retirement accounts can't easily fund that bridge. A taxable account can.

How Should You Invest Your Retirement Account?

Choosing your retirement account type is the first decision. Choosing what goes inside it is the one that compounds. While your investments should always be customized to your personal situation, risk tolerance, and goals, a few principles that apply broadly to self-employed business owners may include:

• Diversify away from your own business. This is the most under-appreciated risk a solo earner carries. Your income, your professional network, and often your reputation are all tied to one revenue engine. If your investments are also concentrated in your industry, a downturn hits everything at once. The point of the portfolio is to not look like your business — a principle we unpack in how to diversify investments beyond your business.
• Keep costs low and stay invested. Fees and taxes are the two variables you can control. Returns are not. The temptation for a self-employed person is to treat the portfolio like the business — something to actively manage and optimize. Resist it. Low-cost, broadly diversified funds held steadily tend to beat a portfolio that gets fiddled with, and every fee you pay is a guaranteed cost against an uncertain return.
• Rebalance on a schedule, not on a feeling. Irregular income makes it tempting to time contributions around how the market feels — pulling back after a downturn, piling in after a run-up, or skipping a contribution in a month that felt "off" even though cash flow was fine. That instinct is usually expensive, and it's a harder trap for the self-employed than for employees, because you already have to make an active decision every time you save. 

Now, what about if you’re self-employed but have or are planning to have employees in the future?

Retirement Plans for Self-Employed With Employees

A Solo 401(k) is only for a business with no employees other than you and your spouse. The moment you hire a full-time, non-spouse employee who meets the eligibility rules, the plan generally has to convert to a regular 401(k) — with testing, filing, and likely an employer contribution for that employee. 

So if you can see a hire on the horizon, the decision-making process on your retirement plan changes. A SEP IRA travels more gracefully into a business with staff, because you can simply extend it — though remember the trade-off: with a SEP, you must contribute the same percentage of compensation for every eligible employee that you contribute for yourself. Decide to put in 15% for yourself, and every eligible employee gets 15% of their compensation too.

If you're already using a SIMPLE IRA as a solo earner, hiring doesn't mean switching plans — but the math changes. The mandatory employer contribution you've been making just for yourself (a 3% match or 2% nonelective contribution) now applies to every eligible employee, not just you. That's the trade-off that makes a SIMPLE IRA scale reasonably well: it's built specifically for small businesses with 100 or fewer employees, with a lower administrative lift than a full 401(k) — no annual Form 5500 filing required.

For businesses that grow past a one-person shop, a SIMPLE IRA is usually the first stop, and past a certain size, a full 401(k). Growth changes the plan. Planning for the growth you expect — rather than reacting to it — is part of holistic financial planning for entrepreneurs.

Mistakes Self-Employed Savers Make Most Often

• Waiting for a "good enough" year to start. The good year keeps not arriving. Starting small and automatic beats starting big and later.
• Skipping the personal IRA. It stacks on top of your business plan. A lot of solo earners never realize that.
• Letting the account sit in cash. Funding it is half the job. Investing it is the other half.
• Keeping too thin a cash reserve, and then pulling from retirement accounts to fund other needs when a client pays 90 days late.
• Ignoring self-employment tax in the planning. You owe both halves — roughly 15.3% on net earnings before income tax even begins. Contributions to a pre-tax retirement plan reduce income tax, not self-employment tax.
• Never revisiting the plan. The account that fit at $60,000 of income is often the wrong one at $250,000, and the wrong one again when you hire.

Which Approach Makes the Most Sense for You?

While the type of retirement account you choose matters, what’s more important is the system you build around it. A SEP IRA funded religiously every year beats a perfectly optimized Solo 401(k) that gets funded twice and forgotten. The tax structure is worth getting right, and the difference between the two can be real money. But it's a rounding error next to the difference between saving 20% of your income for twenty years and saving whatever happens to be left over.

So the question isn't "which plan is best for the self-employed?" in the abstract. It's: what can I sustain through a bad quarter, a slow year, and a client I lose — and what does that build over twenty years? Answer that, and the account choice mostly answers itself.

As you plan how to achieve your retirement goals and other financial goals, it’s good to have someone in your corner who understands and can guide you — from figuring out how much you'll need, when you'll need it, and how much to save and where. If you want a second set of eyes, schedule a call with one of our financial advisors at the Troncoso Group and we’ll be happy to walk through it together.

Disclosures: Jaffe Tilchin Investment Partners is a Registered Investment Advisor. Certain representatives of Jaffe Tilchin Investment Partners are also Registered Representatives offering securities through APW Capital, Inc., Member FINRA/SIPC. 999 Riverview Drive Suite 201 Totowa, NJ 07512. (800)637-3211 Check the background of this firm on FINRA’s BrokerCheck.