Key Points
- Retirement planning is important for self-employed people, yet many don’t have a formalized retirement plan.
- Self-employed workers have a variety of retirement savings options, including traditional and Roth IRAs, solo 401(k)s, SEP IRAs, and SIMPLE IRAs.
- The right retirement plan for your business depends on your personal and professional goals, number of employees, and how much you want to save.
- Working with a financial advisor can help you choose the right plan, save strategically, and align your business and personal goals.
When you’re self-employed, retirement planning looks a little different. Without the benefit of employer-sponsored 401(k)s or pension plans, saving for the future falls squarely on your shoulders.
Fortunately, there are several ways self-employed individuals can save proactively for retirement. Choosing the right retirement plan when you’re self-employed can help lower your taxes, grow your savings, and provide financial stability when you stop working. Understanding how each plan works can help you pick one that aligns with your income, goals, lifestyle and financial plan.
Let’s explore some common retirement savings vehicles small business owners and entrepreneurs can consider.
Rise in Self-Employment
Over 35% of the workforce are freelance professionals according to a study by the Freelancers Union and Upwork. The same study also revealed freelance income generates nearly $1 trillion dollars, further bolstering its importance to the U.S. economy.
While the pandemic has hit freelancers and contract workers hard, many experts still predict a rise in this type of work over the next few years. With our increasing reliance on technology, it’s easy to see how the gig-economy can thrive. What isn’t thriving? Freelancer’s retirement savings.
Why More Americans Are Turning to Self-Employment
As the modern workforce evolves, self-employment is becoming a defining feature of how Americans choose to work. Data from the Bureau of Labor Statistics showed 16.75 million workers (around 10% of the total workforce) were self-employed in the first quarter of 2024. This number incorporates a wide range of professions and industries, including:
- Freelancers and consultants
- Franchisees
- Small business owners
- Digital product sellers
- Startup founders
- Financial and legal professionals
- Medical and wellness providers
- Real estate agents and brokers
- Residential contractors and builders
- Home services
- Transportation and delivery drivers
- Content creators and influencers
Many more Americans say they would love to be their own boss. In a 2024 Gallup poll, 62% of those surveyed said they wanted to pursue business ownership. The major obstacle preventing them from taking the leap? Financial risk, according to nearly 50% of respondents who wanted to be their own boss.
Why Self-Employed Workers Save Less for Retirement
One of the biggest financial risks for the self-employed is that saving for retirement can be more difficult. Transamerica reported only 22% of self-employed individuals have a written retirement plan. Many business owners say their plan is to simply keep working long past retirement age.
Why Does Saving for Retirement Feel So Much Harder When You’re Self-Employed?
Several factors make retirement saving difficult for self-employed individuals. Business expenses can be high, while income may be inconsistent. Health insurance premiums and the rising cost of living can eat into profits. It can be difficult to save for the future when there are so many other things that need funding in the present.
Time is also a big factor. For many business owners, retirement planning can feel like just another item on an already long list of tasks and to-dos. But investing the time and resources into creating a comprehensive financial plan that includes retirement planning can be well worth the effort for self-employed individuals.
Why It Pays to Establish a Retirement Plan
Why should self-employed workers and business owners establish a retirement account? Saving for retirement doesn’t just help future you; it can also offer self-employed workers with benefits including:
- Lower taxable income with pre-tax contributions
- The option to write off the plan administration (and your time working on it) as a business expense
- Potential peace of mind and confidence that your retirement is funded
One thing to consider is that self-employed people tend to structure their businesses to minimize taxable income, which makes sense for tax purposes. But it also has unintended consequences: lower reported income means you may not get as much in Social Security benefits. You’ll likely need to save more in a retirement account to ensure expenses are covered in your later years.
There are several options for retirement savings, each with its own pros and cons. Let’s look at each type of retirement account, how it works, and how to decide what’s right for you.
Retirement Plan Savings Options for the Self-Employed
Several retirement avenues exist depending on your goals and the size of your business (i.e. revenue and number of employees). The most common options are:
- Traditional or Roth IRA
- Solo 401(k)
- SEP-IRA
- SIMPLE IRA
Next, we’ll explore how each plan works to understand their features and how to find the best fit for you.
Traditional or Roth IRA
Self-employed people can supplement retirement savings by opening a traditional or Roth IRA. Since both accounts are individual plans, you have control over where you open your account and which investment selections you choose.
Both traditional and Roth IRAs allow you to contribute $7,000 in 2025, with an additional $1,000 contribution if you’re age 50 or older. The difference lies in how they’re taxed:
- Traditional IRAs are funded with pre-tax money. Contributions are deducted from your taxable income in the year they’re made, then you pay taxes when you take withdrawals from the account in retirement.
- Roth IRAs are funded with post-tax money. Contributions aren’t deducted from your taxable income in the year they’re made, but the money grows tax-free over time and you won’t pay taxes on withdrawals later.
Be aware of income limits that could prevent you from contributing to a Roth IRA, depending on your filing status and modified adjusted gross income (AGI):
If you’re leaving traditional employment to open your own business, one option is to roll over funds from your old 401(k) (or multiple 401(k)s) into an IRA. Rollovers aren’t subject to the same contribution limits, and you may have a larger selection of investment options available. Even better, a rollover isn’t taxable if you move the money into a traditional IRA.
Solo 401(k)
If you own a business where you and your spouse are the only employees, establishing a solo 401(k) could be a great option.
A solo 401(k) operates similarly to 401(k) plans at larger companies, from pre-tax contributions (up to certain income levels)and total contribution limits, to early withdrawal penalties and more. Some solo 401(k) plans have Roth 401(k) options, and they may also allow contributors to take loans from their accounts.
The difference is that a solo 401(k) lets you contribute both as an employee and employer. This benefit can help provide flexibility for contributions and an advantage when compared to other tax-advantaged retirement plans.
Your employee contributions are considered elective deferrals. How much you can defer in 2025 depends on your age:
- Anyone – Up to $23,500
- Ages 50-59 – Up to $31,000
- Ages 60-63 – Up to $34,750
Then, your business can also contribute up to 25% of compensation (known as employer non-elective contributions), with a limit of $350,000 in compensation. The combined contribution amount can reach up to $70,000 if you’re under age 50; $77,500 if you’re over age 50; and $81,250 if you’re age 60 to 63.
For example, if you make $175,000 in compensation in 2025 and you’re age 55, your contributions might look like this:
If your spouse also works for the company, they can contribute up to those same limits and the business can match their contributions.
It’s important to note that not every solo 401(k) account is created the same. Here’s what you can look for when selecting your account:
- Wide variety of assets (mutual funds, ETFs, etc.)
- Potential Roth 401(k) option
- Reasonable fees (administration, maintenance, etc.)
- Reputable financial institution
- Right amount of plan flexibility
SEP IRA
A Simplified Employee Pension IRA, also known as a SEP IRA, can be a good option for sole proprietors or business owners with just a few employees, especially if those employees earn more modest salaries and may not participate in a 401(k) program. SEP contributions are deductible for the business, and are not included in employee gross income.
A SEP IRA is a variation of a traditional IRA and among the simplest plans to establish and run. Contributions are tax-deductible, funds grow tax-free, and distributions are taxed as ordinary income in retirement.
Only the employer can make SEP contributions, which are deductible for the business and are not included in an employee’s gross income. However, there are some important considerations to keep in mind. Employees can become eligible after working for you in at least three of the last five years, and even part time employees count if they meet this requirement. Because of this, SEP IRAs can become more costly for business owners – you must contribute the same percentage of compensation for all eligible employees as yourself.
Let’s say you save 20% of your total compensation. With a SEP IRA, you must also contribute 20% of your employees’ compensation to their plans.
Some rules to consider:
- You can contribute either 25% of total compensation or $70,000 (whichever is less) in 2025.
- SEP IRAs don’t allow catch-up contributions.
- SEP IRAs don’t have a Roth equivalent.
Another SEP IRA benefit is that you don’t have to commit to a certain contribution threshold each year, providing flexibility for those with variable incomes.
SIMPLE IRA
Are you looking for a plan suited for several employees? The Savings Incentive Match Plan (SIMPLE) could be a welcome fit for your company.
A SIMPLE-IRA can suit businesses with up to 100 employees. Like a Solo 401(k), it allows both the employer and employee to contribute to the account.
Here are the basics:
- Employees can contribute up to $16,500 in 2025. Those who are ages 50 to 59 can contribute an additional $3,500, for a total contribution of $20,000. The “super catch-up” contribution for ages 60 to 63 is $5,250, for a total of $21,750.
- Employers can choose a non-elective contribution of 2% of the employee’s salary or a 100% match on up to 3% of their salary.
This plan can be a good option for employers on several fronts. The start-up and maintenance fees are low, and any contributions made to an employee’s account are tax-deductible. No discrimination testing is required, and some businesses may be able to take advantage of credits of $500 per year for three years when they set up automatic contributions.
While a SIMPLE-IRA can offer many benefits, contribution thresholds for a SIMPLE-IRAs are significantly lower than other vehicles. This may limit the amount you (and your employees) can save for retirement.
How a Financial Advisor Can Help You Plan for Retirement When You’re Self-Employed
Running a business often means juggling countless financial decisions. Working with a financial planner can bring clarity, structure, and accountability to your retirement planning. Here’s how working with a financial planner can help you:
- Choose the Right Plan – An advisor can help you compare options like a SEP IRA, Solo 401(k), or SIMPLE IRA and identify the plan that best aligns with your income, employee count, and savings goals.
- Maximize Tax Efficiency – Retirement contributions can lower your taxable income, but only when strategically coordinated. Advisors can integrate your business deductions, estimated taxes, and contributions into one cohesive strategy.
- Align Business and Personal Goals – For many self-employed people, their business is their largest asset. A financial advisor helps you balance reinvesting in your company with saving for your long-term future.
- Stay Consistent and Accountable – When income fluctuates, it’s easy to pause contributions. Advisors can help you set up automated systems and adapt as your business grows, so your savings stay on track.
- Plan for Your Vision of Retirement – Whether you want to sell your business, scale back, or transition into passion projects, an advisor can help you build a roadmap that connects your values, lifestyle, and legacy goals.
Over the years, I’ve seen clients diligently contribute the maximum amount to their SEP IRA. However, with SEP IRAs, you can’t take advantage of the catch-up provisions available through an individual 401(k). For example, in 2025 those catch-up contributions are $7,500 per year for individuals ages 50 and older, and $11,250 per year for individuals ages 60 to 63. This means that someone could be missing out on thousands of dollars in potential tax-deferred savings each year, which could make a difference in the long-term portfolio and retirement readiness.
What It’s Like to Work with an Abacus Financial Advisor
At Abacus Wealth Partners, our approach goes beyond investment management. It’s about helping to create alignment between your money and your life. We understand the unique challenges self-employed professionals face: irregular income, business reinvestment, and balancing personal and professional priorities.
When you work with an Abacus financial advisor, you’ll have a partner who can help you:
- Simplify complex decisions by translating financial jargon into clear, actionable steps.
- Design a personalized strategy that integrates your business finances with your personal goals.
- Stay grounded in your values so your financial plan reflects what truly matters most to you, not just what’s on paper.
- Collaborate with a dedicated team, not just one advisor, who can work alongside your other financial professionals, to bring together experience in tax planning, investments, and long-term wealth strategy.
Every Abacus relationship begins with curiosity about your story, values, goals, and your definition of success. From there, we help you build confidence and clarity so your business and personal wealth can grow side by side. Learn more about working with Abacus by booking a call.
How to Find the Right Retirement Plan for Your Small Business
Business owners have several options for retirement savings vehicles. While a busy entrepreneur’s time is often limited, saving for the future should be a top priority for yourself, your family, and your business.
The right retirement plan for you will depend on company revenue, number of employees, your corporate tax situation, and personal and business goals. At Abacus, we help small business owners by building strategies that align their business success with personal freedom.
Ready to explore which retirement plan fits your goals? Connect with an Abacus financial advisor to build a retirement plan that supports both your business and your financial future.
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