Retirement Planning for Self-Employed: Which Account Strategy Works Best for You?

Going independent means freedom—but it also means ditching the traditional 401(k) your employer used to handle. The good news? You’ve got real options to build retirement savings. Here’s how to navigate the landscape and pick what actually fits your situation.

The Core Players: Five Retirement Accounts for Freelancers and Business Owners

Before we break down the details, here’s what’s available: Traditional IRA, Roth IRA, Solo 401(k), SEP IRA, and SIMPLE IRA. All can be opened directly through financial institutions online. The key difference lies in contribution limits, tax treatment, and who they suit best.

Traditional IRA vs. Roth IRA: The Tax Trade-Off

Traditional IRA lets you contribute pre-tax dollars, which means immediate tax deductions. Your money grows tax-deferred, but you’ll pay ordinary income tax on withdrawals after age 59.5. The catch: you must start withdrawing at 72. For 2022, you can contribute up to $6,000 annually ($7,000 if you’re 50+).

This works best if you expect to be in a lower tax bracket in retirement than you are now.

Roth IRA flips the script. You contribute after-tax dollars with no immediate deduction, but qualified withdrawals are completely tax-free. You also have flexibility—pull your contributions anytime without penalty. The downside: income limits apply. For 2022, your Modified Adjusted Gross Income can’t exceed $144,000 (single) or $214,000 (married filing jointly) to contribute the full amount.

Same $6,000/$7,000 contribution limits as the Traditional IRA, making both ideal for freelancers saving modestly.

Solo 401(k): Maximum Contributions for Solo Operators

If you’re self-employed with no employees (except a spouse), the Solo 401(k) is your power move. Contribution limits are substantially higher because you wear two hats: employer and employee.

For 2022, as an employee you can defer up to $20,500 ($27,000 if 50+). As an employer, you contribute up to 25% of net self-employment income. The total cap is $61,000 ($67,500 if 50+)—roughly 10 times what you’d get with a Traditional or Roth IRA.

The tax benefits mirror a traditional 401(k): contributions are deductible, growth is tax-deferred, and withdrawals are taxed as ordinary income after 59.5.

SEP IRA: Simplicity Meets Scale

The SEP IRA (Simplified Employee Pension) works if you have zero to a handful of employees. Here’s the critical rule: whatever percentage of compensation you contribute to your own account, you must contribute the same percentage to each employee’s account.

For 2022, you can contribute up to 25% of compensation or $61,000—whichever is less. There’s no Roth option, and no catch-up contributions for those 50+, but the simplicity appeals to many business owners.

The tradeoff: adding employees makes this option more expensive for you.

SIMPLE IRA: For Teams of 100 or Fewer

The SIMPLE IRA was designed for small businesses with up to 100 employees. Like the SEP IRA, you must contribute to employee accounts, but you have flexibility: either contribute 2% of each eligible employee’s compensation automatically, or match up to 3% of what they contribute.

For 2022, employee elective deferrals cap at $14,000 ($17,000 if 50+). Tax benefits work the same as other accounts—contributions are deductible, growth is tax-deferred.

How to Choose: Match the Plan to Your Business Model

Solo or freelance with no plans to hire? The Solo 401(k) maximizes your contributions. If you want simplicity instead, a Traditional or Roth IRA works fine, though with lower limits.

Have a small team? The SEP IRA offers easy administration if your employee base stays lean. If you’re expecting more hiring, the SIMPLE IRA gives employees a voice through matching contributions.

Modest income or uncertain tax situation? Start with a Traditional or Roth IRA. You can always upgrade later.

The Bottom Line

Freelancers and small-business owners have legitimate, tax-advantaged paths to retirement savings. These aren’t one-size-fits-all—a solo consultant’s best move (Solo 401(k)) differs completely from a small agency owner’s priority (SIMPLE IRA). The key is understanding your cash flow, growth timeline, and whether you plan to bring on employees. Then pick the account that aligns with your actual business structure, not the one with the biggest numbers attached to it.

The real cost of inaction is far higher than the effort to choose. Start exploring your options today through established financial institutions, and build retirement security that works with your independence—not against it.