Self-Employed Retirement Plans: Which is the Best for You?

When you work for yourself, no one is automatically setting money aside for your retirement. That responsibility is yours — and the good news is that the IRS has created some genuinely powerful tools to help you do it well.

There are four retirement plans worth knowing as a solopreneur: the Traditional IRA, Roth IRA, SEP IRA, and Solo 401(k). They’re not all equal, and the right choice depends on your business structure, income level, and goals. This guide breaks down how each one works, what it costs you in taxes, and where the tradeoffs are.

Contribution limits for all of these plans adjust annually. For current figures, see our year-specific guides. And before opening or funding any plan, consult a tax professional — the right choice varies by situation.

Traditional IRA

A Traditional IRA (Individual Retirement Account) lets you contribute pre-tax dollars, reducing your taxable income in the year you contribute. You pay ordinary income tax on distributions when you retire. The IRS sets an annual flat contribution limit — the same dollar amount regardless of your income — and that limit adjusts periodically for inflation.

One thing worth noting for self-employed people: a Traditional IRA contribution reduces your income tax, but it does not reduce your self-employment tax. For business owners whose tax burden is heavily weighted toward SE tax, that’s a meaningful limitation compared to the business-specific plans below.

Traditional IRAs are easy to set up and most brokerage firms don’t charge a fee to open or maintain one. You can set up and fund the account up to the original due date of your tax return (generally April 15) and apply the contribution to the prior tax year.

Deductibility phases out at higher income levels if you or your spouse are covered by a workplace retirement plan. The IRS updates these thresholds annually — see the current limits if you are covered by a workplace plan or if you are not covered by a workplace plan at IRS.gov.

Traditional IRA Summary

Traditional IRA at a glance
Contribution limit	Flat annual limit set by the IRS; adjusts periodically. See current limits.
Tax treatment	Pre-tax; distributions taxed as ordinary income in retirement
Contribution deadline	Original tax return due date (April 15)
Income limits	Deductibility phases out at higher incomes if covered by a workplace plan
SE tax impact	None
Best for	Starting out; lower income; no access to employer plan

Roth IRA

A Roth IRA flips the tax timing. Contributions are after-tax — no deduction today — but your account grows tax-free, and qualified withdrawals in retirement are completely tax-free. The contribution limit is the same as a Traditional IRA and is shared across all your IRA accounts combined.

The key tradeoff is income eligibility. Roth IRA contributions phase out above a certain modified adjusted gross income (MAGI) threshold, and above the upper limit, direct contributions are not allowed. A “backdoor Roth” strategy exists for higher-income earners — consult a tax professional to determine whether that applies to your situation. The IRS updates income thresholds annually; see current Roth IRA contribution limits at IRS.gov.

Both Traditional and Roth IRAs are solid starting points, but their contribution limits are considerably lower than the business-specific options below. They tend to work best as a complement to a SEP IRA or Solo 401(k), or as a starting point before a business plan is established.

Roth IRA Summary

Roth IRA at a glance
Contribution limit	Same flat annual limit as Traditional IRA; shared across all IRA accounts. See current limits.
Tax treatment	After-tax contributions; tax-free growth and distributions in retirement
Contribution deadline	Original tax return due date (April 15)
Income limits	Phase-out applies; check IRS.gov for current thresholds
SE tax impact	None
Best for	Lower income; long time horizon; tax-free growth preferred

SEP IRA

The Simplified Employee Pension (SEP IRA) is purpose-built for self-employed individuals. Unlike IRAs, the contribution limit isn’t a flat dollar amount — it’s a percentage of your income, which means higher earners can save considerably more.

How that percentage is calculated depends on your business structure. For Schedule C filers (sole proprietors and SMLLCs), contributions are based on net self-employment earnings after deducting half of your SE tax. The effective maximum contribution rate works out to approximately 20% of net earnings. For S Corp owners, the calculation is different: contributions are based on 25% of your W-2 wages, not your total business income. Your contribution ceiling is tied directly to the salary you pay yourself — which means SEP IRA contributions and payroll decisions are closely linked.

There are no income restrictions on SEP IRA contributions, and you can set up and fund the account by the tax return due date including extensions — giving you until October 15 if you file an extension. Administrative costs are typically minimal.

SEP IRA Summary

SEP IRA at a glance
Contribution limit	Up to 25% of compensation (S Corp) or ~20% of net earnings (Schedule C), subject to an annual IRS cap. See current limits.
Tax treatment	Pre-tax; distributions taxed as ordinary income 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
Best for	Schedule C filers; simpler administration; flexible deadlines

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 at the same income level, particularly for S Corp owners paying themselves a meaningful salary.

The employee deferral runs through payroll for S Corp owners and is subject to a flat annual limit set by the IRS. The employer contribution is based on 25% of W-2 wages (for S Corp owners) or approximately 20% of net self-employment income (for Schedule C filers). A Roth option is available at many providers for the employee deferral portion.

Two deadlines apply that don’t exist for other plans. The Solo 401(k) plan must be established by December 31 of the year you want to make contributions — you cannot open it retroactively after year-end. Employee deferrals must also be made by December 31. The employer contribution can be made up to the tax return due date including extensions.

Catch-up contributions are available for savers age 50 and older, with an enhanced provision under SECURE 2.0 for those ages 60–63. This enhanced catch-up is optional for plan sponsors — confirm with your provider that your plan supports it before relying on it. See current limits for specific figures.

Solo 401(k) Summary

Solo 401(k) at a glance
Employee deferral limit	Flat annual limit set by the IRS; adjusts annually. See current limits.
Employer contribution	Up to 25% of W-2 wages (S Corp) or ~20% of net earnings (Schedule C)
Combined maximum	Annual IRS cap; higher than SEP IRA at comparable income for S Corp owners. See current limits.
Catch-up contributions	Available for ages 50+; enhanced amount for ages 60–63 under SECURE 2.0. See current limits.
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 at many providers
Best for	S Corp owners; higher earners; those wanting maximum contribution flexibility

Self-Employed Retirement Plan Comparison

Here’s how the four plans stack up. Contribution limits adjust annually — see our 2025 limits guide or 2026 limits guide for current figures.

Plan	Contribution Basis	Tax Treatment	Income Limits	Best For
Traditional IRA	Flat annual limit	Pre-tax	Deductibility phases out at higher incomes	Starting out; lower income
Roth IRA	Flat annual limit (shared with Traditional IRA)	After-tax; tax-free distributions	Contribution phases out at higher incomes	Lower income; long time horizon
SEP IRA	% of compensation, up to annual IRS cap	Pre-tax	None	Schedule C filers; simpler administration
Solo 401(k)	Employee deferral + employer contribution, up to annual IRS cap	Pre-tax or Roth	None	S Corp owners; higher earners

Rollovers: Consolidating Old Accounts

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 that outlines which account types can roll into which.

Consolidating accounts simplifies tracking, can reduce fees, and makes retirement planning easier to manage over time. A financial advisor can help you evaluate whether consolidating makes sense for your situation.

Choosing the right retirement plan is rarely straightforward. The best option depends on your business structure, income level, whether you’re running payroll, and your long-term goals. None of these decisions need to be made in isolation — a tax professional can help you work through the tradeoffs specific to your situation.

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.