With the rise of self-employment, one of the biggest challenges that many self-employed individuals face is planning and saving for retirement. Without access to a traditional employer-sponsored 401(k), it can feel like you’re on your own. But here’s the good news: you have options. In many cases, the retirement saving tools available to business owners can be even more flexible and powerful than a standard 401(k). Let’s break it down.
1. SEP IRA (Simplified Employee Pension Plan)
A SEP IRA is ideal for solo business owners or those with few employees. They are easy to establish and allow higher contribution limits compared to a traditional IRA. In 2025, you can contribute up to 25% of your net earnings from self-employment, with a maximum of $70,0001. Remember that if you have employees, you must contribute the same percentage of compensation for them as you do for yourself.
Why it’s great:
- Contributions are tax-deductible.
- High contribution limits.
- Minimal paperwork.
- You’re not locked into contributing yearly, which is perfect if your income fluctuates.
2. Solo 401(k)
This plan is ideal for self-employed individuals with no employees (except possibly a spouse). A solo 401(k) allows you to contribute as both the employer and the employee, potentially enhancing your savings significantly. However, there is more paperwork involved, especially if your plan assets exceed $250,000.
For 20252:
- Employee deferral: Up to $23,500 (or $31,000 if you’re 50+).
- Employer contribution: Up to 25% of compensation.
- Total: Up to $70,000 (or $77,500 if 50+).
Why it’s great:
- Potential for higher contributions.
- The Roth option is available in many plans.
- You can take loans from the plan if needed.
3. SIMPLE IRA (Savings Incentive Match Plan for Employees)
A SIMPLE IRA is an appealing option for small businesses with 100 or fewer employees. This plan is easier to manage than a 401(k) and allows contributions from both employers and employees. Employers must match contributions up to 3% of compensation or contribute 2% for all eligible employees. In 2025, the contribution limits increased to $16,500 (plus a $3,500 catch-up for those aged 50 and older). This limit is lower than that of a Solo 401(k) or SEP IRA.
Why it’s great:
- Simple and low cost.
- Encourages employee participation if you have a team.
- Contributions are tax-deductible.
4. Traditional & Roth IRAs
Traditional and Roth IRAs aren’t exclusive to the self-employed. However, they are excellent tools for tax-advantaged retirement savings and can serve as a foundation or a supplement to other retirement plans.
With a contribution limit of $7,000 (or $8,000 if you’re 50 or older)3, these options provide several tax benefits. Traditional IRAs offer tax-deferred growth, and contributions may be deductible depending on income. Roth IRAs allow contributions with after-tax dollars, but qualified withdrawals are tax-free.
Why it’s great:
- Great for diversifying your tax strategy.
- Easy to open and manage.
Which Plan Is Right for You?
Choosing the best retirement plan depends on your income level, whether you have employees, how much flexibility you need, and your current retirement savings mix. A Solo 401(k) might be perfect for a high-earning solopreneur, while a SEP IRA could be the right fit for someone who wants minimal maintenance. And don’t forget the Roth IRA—it’s like a retirement dessert: always worth saving room for.
We can help you determine the best option for you and your business. Feel free to give us a call at (570) 654-4469 to discuss.
- Vanguard.com
- IRS.gov
- IRS.gov
Diversification does not assure or guarantee better performance/profit and cannot eliminate the risk of investment losses in declining markets. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.