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Best Retirement Plans for the Self-Employed

retirement plans for the self-employed

When you work for a big company, there are a lot of decisions that are made for you: who you work with; the corporate goals and priorities; what your company’s retirement plan is; what your company does for health care.

As an entrepreneur you get to be your own boss and be in control of much more of your own life.

It’s an amazing thing to be your own boss. You can set your own hours, your own rates, and approve of the people you work with directly. But it offers certain challenges as well, such as what to do for your benefits, including saving for retirement.

You know you should contribute regularly, making it a priority and establishing your long-term financial health. But what are your options when you’re self-employed? How do you get started and what should you be looking at? Hopefully, we have the answers you are looking for!

Key Points
  • Self-employment gives you more freedom than a regular 9-5 job
  • That freedom comes with responsibilities, like choosing a retirement and health plan options
  • There are several ways to save for retirement, but one stands out from the rest

Retirement Plans for the Self-Employed

Solo 401(k)

A quick internet search will show one of the best retirement plans for the self-employed is the Solo 401(k).

What is it and how does it work?

Let’s tackle that first question:

What is a Solo 401k?

A Solo 401(k) works the same way as a regular workplace plan does, but is specifically designed for someone who is self-employed. So long as you have self-employment income, you can generally utilize the Solo.

Popularity for the plan increased back in 2001, when the Economic Growth Tax Relief Reconciliation Act (EGTRA) came into effect. This act revamped the Solo 401(k), adding on attractive features, such as changing how salary deferral contributions are treated when calculating the maximum deduction limits for contributions to a 401(k).

Can I have a full-time job and use the Solo 401(k)?

If you have a regular 9-to-5 but still generate some form of self-employment income, you can establish a Solo 401(k) plan, as it meets one of the two eligibility requirements: the presence of self-employment income.

The other requirement is the absence of full-time employees. You cannot use a Solo if you have them. The only exceptions are your spouse or other owners and their spouses. You can have part-time employees or use independent contractors and still open a Solo 401(k).

Now let’s tackle that second question:

How Does it Work?

As we just touched on, in order to be eligible for the Solo 401(k), you cannot have employees who work full-time and you must generate some form of self-employed income.

Self-employment comes from so many different walks of life. It can include freelance writing or Uber driving. You may be a doctor or a truck driver. In fact, there are many jobs that will generate self-employment income and allow you to establish the plan. So long as you meet the eligibility requirements, you can go Solo!

Higher Contributions

The Solo 401(k) plan allows you to make contributions as both the employer and employee, up to $61,000. And you have a $6,500 catch-up contribution if you meet the age threshold of 50 or above.

Check out the latest contribution limits.

The Other Contenders


Another savings vehicle for the self-employed is the SEP IRA, which stands for Simplified Employee Pension and also allows you to put money away for yourself. Plus, if you have full-time employees you can utilize the plan. Keep in mind though, you must contribute equally for every employee. The plan is best suited for businesses with little or no employees.

The have the same maximum contribution as the Solo 401(k), however, there are two major differences. First, the amount you contribute is a percentage of your self-employment income. The Solo, on the other hand, has a regular dollar-for-dollar contribution as the employee, and a percentage as the employer. Therefore, you can reach your maximum much faster with a Solo 401(k). Secondly, there is no catch-up contributions, so you cannot contribute more once you reach age 50.


A Savings Incentive Match Plan for Employees (SIMPLE) IRA allows companies with fewer than 100 employees to make contributions to their retirement. As the name implies, it’s easy to set up with very little administrative duties.

However, the major drawback of the SIMPLE is the contribution limits. You can only contribute up to $14,000 for 2022, plus an additional $3,000 catch-up; far less than the above plans. Plus, if you wish to rollover funds to an IRA, there is a two-year waiting period.

Again, this is a good plan if you have several full-time employees, but aside from that, the SEP and Solo are much better options.

Traditional and Roth IRAs

The other option to save for retirement is the run of the mill IRA. You can opt for the traditional plan, funded with pretax money, or the Roth, funded with after-tax dollars. You don’t need to be self-employed to fund a “regular” IRA, you just need earned income (or a spouse that has the same).

Of course, you are limited to how much you can contribute to an IRA. For 2022, you may put away $6,000, plus an additional $1,000 if you are at least age 50.

On the other hand, the Roth is a popular option among savers. There is no upfront tax break (since contributions are made after taxes are taken), however, all qualified distributions from the plan are tax free.

In reality, the combination of the Solo 401(k) and Roth IRA may be the most ideal solution for the self-employed retirement saver.

Key Takeaway

If you are self-employed, yes, you have the freedom of being your own boss. However, as we stated at the beginning of this article, you also have more responsibilities that you don’t have with a “regular” job. Among those, is saving for retirement. What good is being self-employed, if you don’t have a plan for the future?

Depending on your situation, one of the plans listed here should fit your retirement needs. If you don’t have employees, the choice is simple: the Solo 401(k) is the BEST plan for the self-employed. It gets a little more complicated once you start hiring on employees. Although, the need for more workers usually equates to a more successful business. You just need to adapt to your changing needs.

No retirement plan is helpful if you don’t have a goal in mind and a plan to reach it. Talk to your financial advisor to decide what plan fits your individual needs. Once, that’s decided, contact us to get started!


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