When you work for yourself, no one is automatically setting aside money for your retirement. That responsibility lands squarely on you and the IRS has created some genuinely powerful tools to help you do it well.
This guide covers the four most useful retirement plans for solopreneurs: the Traditional IRA, Roth IRA, SEP IRA, and Solo 401(k). The right choice depends on your business structure, income level, and goals. Consulting a tax professional before opening or funding any plan is a smart move.
Table of Contents
- Traditional IRA
- Roth IRA
- SEP IRA
- Solo 401(k)
- 2025 Plan Comparison
- How Rollovers Work
Traditional IRA
A Traditional IRA (Individual Retirement Account) lets you contribute pre-tax dollars, reducing your taxable income now. You pay ordinary income tax on withdrawals in retirement. Contribution limits apply across all your IRAs combined, and deductibility phases out at higher income levels if you or your spouse are covered by a workplace retirement plan.
One thing worth noting for business owners: a Traditional IRA contribution reduces your income tax, but it does not reduce your self-employment tax.
| Traditional IRA at a glance | |
|---|---|
| 2025 contribution limit | $7,000 (under 50) / $8,000 (50+) |
| Tax treatment | Pre-tax; distributions taxed in retirement |
| Contribution deadline | Original tax return due date (April 15) |
| Income limits | Deductibility phases out at higher incomes |
| SE tax impact | None |
Roth IRA
A Roth IRA flips the tax timing. Contributions are after-tax, but your account grows tax-free and qualified withdrawals in retirement are completely tax-free. The tradeoff: income limits apply, and higher earners may not be able to contribute directly.
| Roth IRA at a glance | |
|---|---|
| 2025 contribution limit | $7,000 (under 50) / $8,000 (50+) |
| Tax treatment | After-tax contributions; tax-free growth and distributions |
| Contribution deadline | Original tax return due date (April 15) |
| Income limits | Phase-out begins at $150,000 (single) / $236,000 (MFJ) |
| SE tax impact | None |
SEP IRA
The Simplified Employee Pension (SEP IRA) is purpose-built for self-employed people. Unlike IRAs, the contribution limit is based on a percentage of your income, which means higher earners can save considerably more.
How that percentage is calculated depends on your structure. For Schedule C filers, it’s based on net self-employment earnings (after deducting half of SE tax), which works out to an effective rate of roughly 20%. For S Corp owners, it’s 25% of your W-2 wages, not total business income. That distinction matters: your contribution ceiling is tied directly to the salary you pay yourself, which makes the SEP IRA and your payroll decisions closely linked.
| SEP IRA at a glance | |
|---|---|
| 2025 contribution limit | 25% of compensation, up to $70,000 |
| Tax treatment | Pre-tax; distributions taxed in retirement |
| Contribution deadline | Tax return due date including extensions (Oct 15 with extension) |
| Income limits | None |
| SE tax impact | Reduces income tax, not SE tax |
| S Corp note | Based on W-2 wages, not total business income |
Solo 401(k)
The Solo 401(k), sometimes called a one-participant 401(k), is the most flexible and often highest-ceiling option for solopreneurs. It lets you contribute in two capacities: as an employee (through a salary deferral) and as an employer (through a business contribution). Combined, those two layers can add up to significantly more than a SEP IRA allows, particularly for S Corp owners who pay themselves a meaningful salary.
A Roth option is available at many providers for the employee deferral portion. Two deadlines matter that don’t apply to other plans: the plan itself must be established by December 31, and employee deferrals must also be made by December 31. The employer contribution can follow with your tax return.
The age 60–63 enhanced catch-up is optional for plan sponsors. Confirm with your provider that your plan supports it before relying on it.
| Solo 401(k) at a glance | |
|---|---|
| 2025 employee deferral limit | $23,500 |
| 2025 employer contribution | Up to 25% of W-2 wages (S Corp) |
| 2025 combined maximum | $70,000 (under 50) |
| Catch-up (ages 50–59, 64+) | +$7,500; total $77,500 |
| Catch-up (ages 60–63) | +$11,250; total $81,250 |
| Plan establishment deadline | December 31 of contribution year |
| Employee contribution deadline | December 31 |
| Employer contribution deadline | Tax return due date including extensions |
| Roth option | Available |
2025 Plan Comparison
Not sure which plan fits your situation? Here’s how all four stack up at a glance. These limits reflect the 2025 tax year and adjust annually. Verify current figures at IRS.gov before making contribution decisions.
| Plan | 2025 Contribution Limit | Tax Treatment | Best For |
|---|---|---|---|
| Traditional IRA | $7,000 / $8,000 (50+) | Pre-tax | Starting out; lower income |
| Roth IRA | $7,000 / $8,000 (50+) | After-tax | Lower income; long time horizon |
| SEP IRA | Up to $70,000 | Pre-tax | Schedule C filers; simpler administration |
| Solo 401(k) | Up to $70,000 | Pre-tax or Roth | S Corp owners; higher earners |
How Rollovers Work
You don’t need a separate account for every job you’ve ever had. The IRS allows you to consolidate retirement accounts through rollovers, transferring balances from one qualifying account type to another. The IRS publishes a rollover eligibility chart at IRS.gov. A financial advisor can help you evaluate whether consolidating makes sense for your situation.
Every plan here has tradeoffs. The best one for you depends on your business structure, how much you’re earning, whether you’re running payroll, and your goals for both today’s taxes and tomorrow’s income. None of these decisions need to be made in isolation.
Collective is the all-in-one back-office platform built exclusively for solopreneurs, handling bookkeeping, payroll, and tax filings so you can stay focused on your work. Talk to an expert.
This content is for educational purposes only and does not constitute legal, financial, or tax advice.
With over eight years in public accounting, Marissa has worked closely with small business owners to navigate tax strategy and compliance. At Collective, she translates complex tax concepts for self-employed individuals into clear, practical content—supporting them on their tax journey so they feel informed, confident, and empowered to make decisions for their business.