Retirement Planning for Solo Entrepreneurs

Solo entrepreneurs don't get a retirement plan handed to them at onboarding. But the plans available to self-employed people — SEP IRAs, Solo 401(k)s, SIMPLE IRAs — can match or beat what most employers offer. The key is knowing which one fits your income, your tax situation, and how your business is structured.

When you work for yourself, no one is automatically setting aside money for your retirement. There's no employer match, no default enrollment, and no HR department reminding you to review your contribution rate. That means retirement planning is entirely on you — which is both a challenge and an opportunity.

The challenge is that irregular income makes it harder to commit to a fixed contribution. The opportunity is that self-employed retirement plans often have higher contribution limits than standard workplace plans, and the contributions are tax-deductible. A solo entrepreneur who uses these plans well can shelter more income from taxes than most salaried employees ever could.

Most people don't realize how much ground they can make up once they start — the contribution limits for plans like the Solo 401(k) are high enough that a few strong income years can build a meaningful foundation.

Solo entrepreneurs have 4 main retirement account types to choose from. Each has different contribution limits, tax treatment, and administrative requirements. Here's how they break down.

SEP IRA

A Simplified Employee Pension (SEP) IRA is the most common starting point for solo entrepreneurs. You can contribute up to 25% of your net self-employment income, with a 2024 cap of $69,000. Contributions are tax-deductible, and you can make them up to your tax filing deadline — including extensions. There are no annual filing requirements with the IRS, which keeps the administrative burden low.

SEP IRAs are a strong fit if your income varies year to year, because you're not locked into a fixed contribution amount. In a lean year, you contribute less. In a strong year, you can put in more.

Solo 401(k)

A Solo 401(k) — also called an Individual 401(k) or One-Participant 401(k) — lets you contribute as both the employee and the employer. For 2024, the combined limit is $69,000, plus a $7,500 catch-up contribution if you're 50 or older. That's the highest contribution ceiling available to solo entrepreneurs.

Solo 401(k)s also allow Roth contributions and loans from the plan — features a SEP IRA doesn't offer. The trade-off is that you need to establish the plan by December 31 of the tax year you want to use it, and if your plan assets exceed $250,000, you'll need to file Form 5500-EZ annually.

SIMPLE IRA

A SIMPLE IRA (Savings Incentive Match Plan for Employees) is available to solo entrepreneurs with no employees, or those who meet certain employee eligibility exceptions. For 2024, you can defer up to $16,000 as the employee, plus a required employer matching or nonelective contribution. The contribution limits are lower than a SEP IRA or Solo 401(k), but the administrative costs are also lower than a traditional 401(k).

Traditional IRA and Roth IRA

Traditional and Roth IRAs are available to anyone with earned income, including self-employed people. The 2024 contribution limit is $7,000 ($8,000 if you're 50 or older). These limits are much lower than SEP IRAs or Solo 401(k)s, so most solo entrepreneurs use them as a supplement rather than a primary retirement vehicle. A Roth IRA grows tax-free and has no required minimum distributions, which makes it a useful long-term complement to a pre-tax plan.

The right plan depends on your income level, how consistent that income is, and whether you want Roth options or plan loan access. There's no single best answer — but there are clear patterns based on your situation.

• Variable income, want flexibility: A SEP IRA lets you adjust contributions year to year and make them up to your tax filing deadline. It's the lowest-friction option for most solo entrepreneurs starting out.
• High income, want to maximize contributions: A Solo 401(k) gives you the highest possible contribution ceiling — up to $69,000 for 2024 — because you contribute as both employee and employer. It also allows Roth contributions if you want tax-free growth.
• Want Roth options without a Solo 401(k): Open a Roth IRA alongside your primary plan. The $7,000 annual limit is low, but the tax-free growth and withdrawal flexibility make it worth using if you're eligible.
• Planning to hire employees later: A SEP IRA requires you to contribute the same percentage for any eligible employees as you do for yourself. A Solo 401(k) is only available while you have no employees other than a spouse. Factor this into your choice if you expect to grow.

A tax professional can help you figure out which plan structure saves you the most in a given year, especially if your income fluctuates or you're weighing pre-tax versus Roth contributions.

Choosing the right account is only the first step. Building real retirement savings as a solo entrepreneur takes consistent habits — especially because there's no automatic payroll deduction doing the work for you.

Pay yourself first

Treat retirement contributions like a fixed business expense, not something you fund with whatever's left over at the end of the month. Set a target percentage of every payment you receive — even 10% to start — and move it to your retirement account before you pay anything else. This is the single habit that separates entrepreneurs who build retirement savings from those who keep meaning to.

Start early and stay consistent

The earlier you open a retirement account, the more time compound growth has to work. A solo entrepreneur who starts contributing at 30 will end up with significantly more at 65 than one who starts at 40 — even if the later starter contributes more per year. You don't need a perfect plan to start. Open the account, make a contribution, and adjust the amount as your income grows.

Use strong income years strategically

Self-employment income isn't steady, and that's actually an advantage if you plan around it. In a high-income year, maximize your contributions — a SEP IRA lets you put in up to $69,000 for 2024, and a Solo 401(k) matches that ceiling. Those contributions reduce your taxable income dollar for dollar. In a lean year, contribute what you can without straining your cash flow. The flexibility built into these plans is designed for exactly this kind of income pattern.

Diversify across account types

Pre-tax accounts like a SEP IRA or traditional Solo 401(k) reduce your taxes now but create a taxable withdrawal in retirement. A Roth IRA or Roth Solo 401(k) does the opposite — you pay taxes now and withdraw tax-free later. Holding both types gives you flexibility to manage your tax situation in retirement, when you may not know what tax rates will look like. Most solo entrepreneurs benefit from having at least some Roth exposure alongside their primary pre-tax plan.