Nearly 60% of U.S. solo business owners report they must build their own retirement safety net, since no employer plan exists to carry that load. This guide starts with that hard truth to show why action matters now.
When you run a one-person business, you wear both hats: worker and employer. Estimate monthly cash flow and expenses before you pick a plan so contributions won’t strain operations.
Choose a tax-qualified plan tied to your IRS filing form and your ability to contribute. Remember that withdrawals before age 59½ usually face a 10% penalty plus taxes, so plan liquidity carefully.
Key Takeaways
- Self-employed individuals must set up their own savings and match a plan to cash flow.
- Decide between tax treatments now versus later when picking a traditional or Roth approach.
- Some options let you act as employer and employee to increase contribution space.
- Check admin needs: custodial accounts vs. formal plan documents and filings.
- Factor catch-up opportunities and withdrawal rules as you near use of funds.
How to choose the right self-employed retirement plan in the United States
Start by measuring how much cash you can safely set aside each month after covering business costs. That simple number should guide which plan fits your income and cash-flow needs this year.
Next, check your business structure. Your IRS filing affects how eligible earnings are calculated and which contributions count. Treat these accounts as long-term: withdrawals before age 59½ usually incur a 10% penalty plus tax.
Match your age and timeline to plan features like catch-up rules and Roth options. Also weigh admin work: some choices are custodian-managed, while others require formal documents and annual filings. If you expect to add staff, factor employer obligations into the budget.
| Factor | What to check | Quick decision guide |
|---|---|---|
| Income volatility | Seasonal revenue, monthly cash flow | Choose flexible contribution limits |
| Age and timeline | Catch-up, Roth, RMD rules | Prioritize catch-up if near 50+ |
| Admin load | Custodian vs. formal plan documents | Pick simpler options to start |
| Tax goals | Current-year deduction vs. tax-free growth | Use traditional or Roth accordingly |
- Document your criteria and review annually.
- Keep an emergency fund to avoid early withdrawals and penalties.
- Start simple and upgrade as income grows.
Solo 401(k) for individuals and spouse-owned businesses
A solo 401(k) lets a business owner stack employee deferrals with employer profit-sharing to accelerate savings.
Contribution limits are generous. In 2024 the combined ceiling is $69,000 plus a $7,500 catch-up if you are 50 or older. For 2025 the employee deferral rises to $23,500 while combined caps adjust with IRS updates.
As both sponsor and participant, you can make an employee deferral (up to the annual deferral limit) and an employer profit-sharing contribution up to 25% of compensation. The sum cannot exceed the overall combined limits.
SECURE 2.0 added higher catch-ups for ages 60–63 in certain years, increasing late-career saving power. Many providers offer Roth deferral options and loan features, typically up to 50% of vested balance or $50,000.
Early withdrawals before 59½ usually face a 10% penalty plus income taxes. When plan assets top $250,000, file Form 5500-EZ annually to stay compliant.
If a spouse works in the business, they can participate and boost household contributions. For a practical comparison of provider choices and limits, see this guide: top 401(k) plans and provider options.
SEP IRA for flexible, high-limit saving when income fluctuates
A SEP IRA gives small business owners a flexible way to save heavily in good years and pause contributions when revenue dips.
How it works: SEP IRAs accept employer-only deposits, normally up to 25% of eligible compensation under IRS formulas. The ceiling is high: $69,000 in 2024 and $70,000 in 2025.
Contribution formula and deductibility
Contributions are tax-deductible and reduce business taxable income in the same year you fund them.
Employer-only contributions and employee impact
If you hire, you must add the same percentage of compensation to all eligible employees’ accounts. That equal-percentage rule affects payroll budgeting and total employer cost.
SECURE 2.0 Roth SEP options
SECURE 2.0 allows Roth SEP contributions when a custodian supports them. Roth SEP deposits are taxed now and can grow tax-free later, so confirm availability before choosing this route.
Setup is simple with IRS Form 5305-SEP or a custodian’s document. Early withdrawals before 59½ usually face ordinary income tax plus a 10% penalty. For a broader look at choices and timing, see this retirement planning guide.
SIMPLE IRA for small businesses with up to 100 employees
A SIMPLE IRA is a low-cost, easy-to-administer option if your business has up to 100 workers.
Savings Incentive Match Plan design: choose a dollar-for-dollar match up to 3% of pay or a 2% nonelective contribution for all eligible workers. That decision sets your annual employer budget and affects payroll planning.
Employee deferral limits are $16,000 in 2024 and $16,500 in 2025. A $3,500 catch-up applies at age 50 and SECURE 2.0 adds a larger $5,250 catch-up for ages 60–63. Employer contributions are mandatory each year, unlike SEP IRAs, so keep steady cash flow in mind.
| Feature | 2024 | 2025 |
|---|---|---|
| Employee deferral limit | $16,000 | $16,500 |
| Standard employer option | 3% match or 2% nonelective | Same |
| Catch-up (age) | $3,500 (50+) | $3,500; $5,250 (60–63 under SECURE 2.0) |
SIMPLE IRAs let employees use Roth deferrals if the custodian supports them, adding tax diversification. Early withdrawals before 59½ normally face a 10% penalty plus tax, so emphasize long-term saving to workers.
When to pick it: Simple teams that need an easy benefit may choose a SIMPLE IRA, but owners seeking higher contribution limits should compare other plans before deciding.
Traditional IRA for tax-deferred savings
A traditional IRA gives you a simple, tax-deferred vehicle to add retirement savings outside a business-sponsored account. Use it to capture pre-tax contributions and grow funds tax-deferred until withdrawal.
2024–2025 contribution limits: you may contribute up to $7,000 each year, with a $1,000 catch-up if you are 50 or older. These IRAs are useful to fill remaining contribution room after funding workplace accounts.
Deductibility can change if you participate in a workplace plan such as a solo 401(k). High income may phase out your deduction, so check IRS thresholds before you file.
RMD timing and coordination
Required minimum distributions begin at age 73 or 75 depending on birth year. Factor RMDs into your long-term tax and withdrawal sequence to avoid surprises.
Contribute carefully and track any nondeductible amounts to simplify future tax reporting and pro‑rata calculations.
- A traditional IRA complements employer-style accounts and offers broad investment choices inside the accounts.
- Keep an emergency fund to avoid early withdrawals, which usually trigger a 10% penalty plus ordinary income tax.
- Consider a spousal IRA to boost household tax-advantaged savings when eligible.
Roth IRA for tax-free withdrawals in retirement
A Roth IRA gives you a way to lock in tax-free growth and flexible access to contributions. It’s a strong complement to pre-tax accounts when you want future withdrawals free of ordinary income tax.
Income eligibility thresholds and contribution limits
Contribution limits are $7,000 in 2024 and 2025 with a $1,000 catch-up if you are 50 or older. Eligibility phases out at higher incomes (example: married filing jointly roughly $230,000–$240,000 in 2024).
Access, no RMDs, and long-term tax strategy
Contributions can be withdrawn anytime tax- and penalty-free, while earnings need a qualified distribution to be tax-free. No required minimum distributions for original owners lets assets grow longer and improves compounding.
- Flexibility: Use contributions for emergencies without tax or penalty.
- Tax mix: Pair a Roth with pre-tax accounts to diversify future tax exposure.
- High-income options: When income exceeds limits, consider a backdoor Roth with professional help to avoid pro‑rata issues.
Coordinate contributions across your IRAs and employer accounts and review withdrawal sequencing. For guidance on taking tax-savvy distributions later, see tax-savvy withdrawals.
Defined benefit plans for high earners seeking maximum contributions
High earners can use a defined benefit approach to lock in very large annual funding when income supports it.
Who they fit: A defined benefit arrangement suits owners with steady, high income who want contributions well beyond defined contribution limits.
Contributions are actuarially set to fund a promised payout and can reach six figures for older owners with strong compensation and short time to retirement.
Required commitment and setup
These plans demand multi‑year funding discipline—often a 3–5 year minimum commitment—and come with higher admin and actuarial costs.
Setup involves formal plan documents, yearly valuations, and stricter compliance than simpler options.
Combining and employer impact
Combine with a 401(k) or SEP to raise total annual savings when revenue allows. That layering is common among professionals seeking maximum contribution room.
- Consider employee coverage: contributions often extend to eligible employees and raise total employer cost.
- Tax treatment: contributions are generally deductible, which can reduce current tax bills materially.
- Exit rules matter: freezing or terminating a plan follows strict procedures and can trigger adverse consequences.
Action step: Because commitments are binding, consult an actuary and a retirement specialist. For further planning on income timing and benefit coordination, see this guide on social security timing and tax strategy: maximize your Social Security benefits.
Compare plans at a glance: limits, taxes, and employee impact
A quick side-by-side view helps you compare contribution ceilings, tax treatment, and what hiring staff will change.
Contribution limits and catch-up opportunities by plan
Solo 401(k): high combined ceiling — $69,000 in 2024 plus a $7,500 catch-up. Enhanced catch-ups apply in some SECURE 2.0 years.
SEP IRA: employer-only contributions up to 25% of compensation, capped at $69,000 (2024) and $70,000 (2025).
SIMPLE IRA & IRAs: SIMPLE deferrals are lower but easy to run; traditional and Roth IRAs have $7,000 limits with a $1,000 catch-up.
Tax treatment now vs. later: traditional vs. Roth options
Traditional choices lower taxable income today. Roth choices trade current deductions for tax-free withdrawals later.
SEP and SIMPLE custodians may now offer Roth options, giving you more tax diversification across accounts.
Employees, matching responsibilities, and administrative load
SIMPLE IRAs force either a 3% match or 2% nonelective contribution. SEP IRAs require equal-percentage treatment if you hire.
Solo 401(k)s can need Form 5500-EZ once assets exceed $250,000. That filing and plan documents raise admin time and cost.
“Balance your need for high contribution limits against payroll complexity and required employer contributions.”
| Feature | Typical impact | Notes |
|---|---|---|
| Contribution limits | Solo 401(k) highest; IRAs lowest | Use SEP or defined benefit to push totals if income allows |
| Tax treatment | Traditional = immediate deduction; Roth = tax-free growth | Mix accounts to manage future taxable income |
| Employees | Match or equal-percentage raises employer cost | SIMPLE and SEP impose contribution rules for eligible workers |
| Admin load | IRAs minimal; defined benefit/401(k) higher | Consider payroll capability before adding employee contributions |
- Weigh contribution limits, catch-ups, and payroll impact together.
- Choose simplicity or capacity based on current income and growth plans.
The best retirement plans for self-employed seniors: decision roadmap
Start by mapping projected income and trigger points that would change your savings strategy. This roadmap helps you choose the right account and when to upgrade as cash flow and hiring needs change.
If you have no employees and want high limits: solo 401(k) vs. SEP IRA
Solo 401(k) usually wins for higher elective deferrals and Roth flexibility. Spousal participation can effectively double household contribution capacity.
SEP IRA stays attractive when profits vary: employer-only deposits up to roughly 25% of compensation are simple to administer and can be paused in lean years.
If you plan to hire or already have employees: SIMPLE IRA vs. defined benefit
SIMPLE IRA is easy to run but requires mandatory employer contributions and lower deferral limits, making it a good entry point when you add staff.
Defined benefit suits very high earners who can commit multi-year funding to hit large contribution targets. It is complex and raises administrative needs, so weigh long-term commitments carefully.
Layering strategies: combining IRA options with business plans
Use IRAs to add tax diversification. A traditional IRA can lower current taxable income, while a Roth IRA provides tax-free withdrawals later, subject to income limits.
Coordinate elective deferrals across jobs and review custodian support for Roth SEP or Roth SIMPLE if Roth access matters.
“Match capacity to cash flow, test upgrade triggers annually, and model outcomes with your CPA before committing.”
- Compare solo 401(k) vs. SEP IRA by compensation, desired Roth access, and spouse involvement.
- When hiring, weigh SIMPLE IRA simplicity against defined benefit power and commitment.
- Layer IRAs with your business account to balance immediate tax relief and future tax-free income; see top IRA accounts for beginners.
Conclusion
Close the loop by picking one or two accounts you can fund reliably each year.
Match your choice to cash flow, projected income, and how many employees you expect to add. Include SEP IRAs or a solo 401 if you need higher contribution ceilings, or a SIMPLE IRA when you want an easy employer benefit.
Check contribution limits each year, watch RMD ages on traditional IRAs, and note penalties for withdrawals before age 59½. Consider startup tax credits and required filings like Form 5500‑EZ once a solo 401 exceeds thresholds.
Shortlist options, verify current year limits, and work with a CPA or fiduciary to implement. For Roth-focused IRA provider choices, see this guide: Roth IRA providers for 2025.