Self-Employed Retirement Accounts

When you are self-employed, you are responsible for building your own retirement savings. One popular option is the SEP IRA (Simplified Employee Pension IRA), which is available to freelancers, sole proprietors, and small business owners with self-employment income.

A SEP IRA allows high contribution limits, up to 25% of your net self-employment earnings, with annual limits set by the IRS. Contributions are made by the employer, meaning you contribute on behalf of yourself if you are self-employed. The plan is popular because it is simple to set up, easy to manage, and offers valuable tax advantages.

Another option for self-employed individuals and small business owners is the SIMPLE IRA (Savings Incentive Match Plan for Employees). This plan is available to businesses with 100 or fewer employees and is designed to be easy to set up and operate. One of the main advantages of the SIMPLE IRA is that employees can make salary deferral contributions, similar to a traditional 401(k), while employers are required to make either a matching or non-elective contribution. The paperwork is minimal compared to a full 401(k), and the costs are generally low. However, the contribution limits are lower than those of a SEP IRA or Solo 401(k), and there are mandatory employer contributions. For small businesses that want to offer a straightforward retirement benefit to employees without the complexity of a 401(k), the SIMPLE IRA can be a solid solution.

Choosing the right retirement account structure depends on the nature of your self-employment. If you are a solo freelancer or run a business without employees, the SEP IRA or Solo 401(k) both offer high contribution limits, but the Solo 401(k) provides additional flexibility, such as Roth contributions and the ability to take loans. If you have a few employees and want to offer a simple, low-cost benefit, the SIMPLE IRA is often the best fit. Consider your current business size, whether you plan to add employees, and how much you want to save each year. Matching the account type to your business goals can help you maximize your retirement savings while keeping administration straightforward.