Retirement Plans for the Self-Employed:
A multitude of retirement plans exist for business owners, independent contractors, and other self-employed people outside of the typical job environment.
These plans offer tax advantages for contributions, but each has its regulations, criteria, and contribution limits. If you’re self-employed or working in the gig economy, it’s crucial to select the type (or types) that best fit your needs and adhere to IRS rules for making contributions.
If you are self-employed, you can also contribute to a taxable broking account, but these accounts don’t give you the same tax benefits as these plans.
1. SEP-IRAs
SEP-IRAs (Simplified Employee Pension IRAs) have large contribution limits and low administrative burden. Those high restrictions have generally supplanted Keogh plans, which were popular before 2001 but are now called “qualified plans” and have largely gone out of fashion.
Self-employed people and business owners can contribute to SEP-IRA plans, but business owners must contribute for all employees at the same fixed percentage of employee compensation.
You can make deductible contributions equalling the lesser of the following:
- 25% of net self-employment income (your SEP contribution and half self-employment taxes are deducted from net profit)
- Up to $72,000 in 2026 ($70,000 in 2025)
SEP-IRAs do not permit extra catch-up contributions. You can make SEP-IRA contributions either on a pre-tax or post-tax (Roth) basis.
2. Solo 401(k)s
Only 401(k)s have large contribution limits, similar to those of employer-sponsored plans, but they also have somewhat higher administrative costs. Solo 401(k)s can be fee-based with some broking firms.
If you have employees apart from your spouse, you cannot contribute to a solo 401(k). But you can choose between a standard 401(k) that you fund with pre-tax earnings or a Roth IRA that you fund with after-tax earnings (which permits tax-free withdrawals in retirement).
If you’re both an employer and an employee, you can contribute up to $72,000 (or $70,000 in 2025) to a solo 401(k) in 2026.
If you’re aged 50 or older, you’re allowed an additional $8,000 catch-up contribution in 2026 ($7,500 in 2025), for a total contribution limit of $80,000 in 2026 ($77,500 in 2025).
The SECURE 2.0 Act also created a new “super catch-up contribution” for workers aged 60 to 63, who will be allowed to make $11,250 in catch-up payments in 2025 and 2026.
Breakdown of the contribution:
- $24,500 or less as an employee in 2026 ($23,500 in 2025). You also make catch-up contributions as an employee.
- As an employer, you can deduct up to 25% of your net self-employment earnings, or a maximum of $72,000 in 2026 ($70,000 in 2025). Net self-employment earnings are your net profit minus your SEP contribution (not including any catch-up contribution) and one-half of your self-employment taxes.
If you have a working spouse who earns revenue from this firm, the same contributions can be made for both of you.
3. SIMPLE IRAs
SIMPLE IRAs are easy to set up and offer higher contribution limits than conventional or Roth IRAs. If you’re self-employed or operate a firm with 100 or fewer workers, you can qualify for a SIMPLE IRA.
An individual’s SIMPLE IRA can receive contributions from both the employee and the employer:
- The employee contribution ceiling for 2026 is 100% of salary or $17,000 ($16,500 in 2025), whichever is lower. However, some individuals (mostly those working for smaller organisations) are eligible for somewhat higher restrictions of $18,100 in 2026 ($17,600 in 2025).
- Catch-up contributions of $4,000 in 2026 ($3,500 in 2025) are also available for people aged 50 and older, or $3,850 for individuals who qualify for the higher contribution level in both 2025 and 2026. For workers ages 60 to 63, the catch-up contribution ceiling in 2025 and 2026 is $5,250, up from previous years.
- The employer can either make a fixed contribution of 2% of the employee’s remuneration on earnings up to $360,000 in 2026 ($350,000 in 2025) or make matching contributions of up to 3% of the employee’s compensation.
4. Traditional or Roth IRAs
Traditional IRAs and Roth IRAs are not just for the self-employed. However, those who work for themselves or own their own business may contribute to these plans. Traditional IRAs allow you to contribute on a tax-deductible basis, and Roth IRAs allow you to contribute on an after-tax basis. The money grows tax-free.
You donate to the accounts in your own name, not as your employer. The total contribution limit for standard and Roth IRAs is $7,500 in 2026 ($7,000 in 2025).
And if you’re 50 or older, you’ll be able to make an additional $1,100 catch-up contribution in 2026 ($1,000 in 2025), pushing your overall contribution limit up to $8,600 in 2026 ($8,000 in 2025).
If you and your spouse earn too much money, you won’t be able to make the maximum contribution, or you might not be eligible to contribute at all. Traditional IRAs don’t have income limits, but whether you may deduct your contributions depends on your income and whether you or your spouse is in a retirement plan at work.
5. Profit-sharing plans
Profit-sharing schemes allow employees a stake in corporate profits based on quarterly or annual earnings. Any-sized business can implement a profit-sharing plan. They can be implemented alongside other retirement plans, but there is significant administrative overhead.
As a business owner, you may opt to pay for employee profit-sharing plans, but you cannot discriminate in favour of highly compensated staff. These plans are commonly associated with 401(k) plans, although only employers contribute to profit-sharing plans. You can make contributions based on a formula that you establish, with the maximum contributions limited to the lowest of the following options:
- 25% of compensation: $2025
- $70,000 2026 + catch-up contributions: $72,000
6. Money purchase plans
Money purchase plans differ from profit-sharing plans in that the employer is compelled to make contributions for plan participants, and payments do not vary from year to year based on company profitability. When you implement this plan, you must set the contribution rate.
Money purchase plans are administratively burdensome. It may be easier to design a pre-approved plan. You, as the employer, may contribute up to the lesser of the following maximum contribution amounts:
- 25% of compensation
- $72,000 in 2026 ($70,000 in 2025). Even people 50 and older can make catch-up contributions.
Pick the best self-employed retirement plan for you.
The best self-employed retirement plan depends upon your needs.
Key factors to consider include:
- You can choose to be involved as an employer, an employee, or both.
- The amount you want to donate.
- If you have other employees, you may want to contribute to their retirement plans too.
- If you want to make donations for yourself and your spouse, please let us know.
- Or if you’d rather make tax-deductible contributions or tax-free withdrawals.
- How much administrative burden are you willing to take on while setting up and managing your plan?
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