Best retirement plans for the self-employed

Whether you're a freelancer, gig worker or small business owner, joining the ranks of the self-employed can be an exciting move. However, with this independence comes some unique challenges—like having to save for retirement on your own.

The good news is that there are a range of retirement solutions designed specifically for your situation. And learning more about these retirement plans for the self-employed can help you decide which option is right for you.

How to save for retirement if you're self-employed

When you're self-employed, you don't have access to an employer's workplace retirement plan, so it's crucial to prepare for your future by saving for retirement on your own. If you haven't done so already, your first step should be to set a retirement savings goal. This can help you determine how much you'll need to set aside each year.

Next, you'll need to determine where to save your money. There are a range of retirement plans for the self-employed available, including several types of individual retirement accounts, or IRAs, and qualified plans. Exploring the pros and cons of each option can help you make a selection.

IRAs

IRAs are a type of tax-advantaged account designed to help you save money for retirement. Anyone who has earned taxable income during the year is eligible to open an IRA. In many cases, you can contribute to an IRA alongside another self-employed retirement plan.

How IRAs work

IRAs allow you to buy and sell a range of investments, much like a regular brokerage account. There are two types of IRAs to choose from—traditional and Roth—and the rules, tax benefits and limitations vary greatly between the two. Familiarizing yourself with how IRAs work can be a helpful first step.

Primary benefits of an IRA

• The steps to open an IRA are fairly straightforward, and accounts are available through many banks and brokerages.
• You'll have the option to roll over retirement savings from a previous employer into a new IRA.
• If you meet certain conditions outlined by the IRS, you may be able to take penalty-free IRA withdrawals for qualified expenses.

Potential disadvantages

• Both traditional and Roth IRAs have relatively low limits for annual contributions—only $7,000 in 2025, with a $1,000 catch-up contribution for those 50 and older.
• If you or your spouse also has access to a workplace retirement plan, you may be limited in your ability to deduct contributions to a traditional IRA on your tax return.
• Roth IRA eligibility begins to phase out at certain income levels and is prohibited at higher levels.

SEP IRAs

Simplified Employee Pension IRAs, or SEP IRAs, are a popular option for freelancers, solopreneurs and business owners with just a few employees. You'll have the ability to choose between a traditional or Roth version of a SEP IRA. Remember that with a Roth, contributions aren't deductible, but qualified withdrawals are tax-free.

How SEP IRAs work

With a SEP IRA plan, you'll set up an IRA for yourself and any eligible employees. Contributions are based on a set percentage of each individual's salary, which you'll determine. Your business will make these contributions into each account on an annual basis. Note that employees don't contribute to their accounts, so the entire burden is on the employer.

Primary benefits of a SEP IRA

• SEP IRAs are easy to set up and administer, with no required annual reporting to the IRS.
• Annual contribution limits are higher than other IRAs.
• Individual retirement contributions may be tax-deductible as a business expense.

Potential disadvantages

• Equal contributions are required—so if you have employees, the percentage you contribute to eligible employees must be the same percentage as you contribute for yourself.
• Contributions are typically limited to 25% of net self-employment earnings, up to a maximum annual limit set by the IRS. The compensation limit for 2025 is $350,000.
• Because contributions to a SEP IRA are made by the business, participants 50 and older won't have the ability to make catch-up contributions.

Solo 401(k)s

Solo 401(k) plans are designed for one person and their spouse—if they also work for the business. You'll have the option to choose between traditional and Roth tax treatments.

How solo 401(k)s work

Solo 401(k) plans function as if you're two separate people—the employee and the employer. As the employee, you can contribute to the plan through salary deferrals, similar to an employer-sponsored 401(k). As the employer, you can make an additional profit-sharing contribution of up to 25% of net income as long as you don't exceed annual contribution limits.

Primary benefits of a solo 401(k)

• Solo 401(k) plans allow for large annual contributions—$70,000 in 2025, or $77,500 if you're 50 and older and $81,250 if you're 60 to 63 years old—which can help you build a retirement nest egg more quickly.
• You can borrow money from your solo 401(k) as long as you adhere to IRS guidelines for repayment.

Potential disadvantages

• Solo 401(k)s are designed for sole proprietors and their spouse.
• If you hire any employees in the future, you may need to convert to another type of plan.
• With a few limited exceptions, you'll be hit with taxes and penalties if you withdraw funds from a solo 401(k) before you reach retirement age.
• Once your solo 401(k) has more than $250,000 in it, you'll have to file Form 5500-EZ annually with the IRS.

SIMPLE IRAs

Savings Incentive Match Plan for Employees IRAs, or SIMPLE IRAs, are commonly used by small businesses with up to 100 employees. Both the business and participating employees can make contributions, and contributions made by the business are fully tax-deductible.

How SIMPLE IRAs work

With a SIMPLE IRA, the business sets up a traditional or Roth IRA for all eligible employees and makes required annual contributions into each account. As an employer, you'll have the choice between matching employee contributions up to 3% of a worker's pay and making a nonelective contribution of 2% of a worker's compensation.

Primary benefits of a SIMPLE IRA

• SIMPLE plans have fewer rules and are easier to manage than many other types of employer-sponsored retirement plans.
• After a 2-year lock-in period, SIMPLE account holders can qualify for the same early withdrawal exceptions that are available to regular IRA holders.
• Tax credits are available to employers and employees who meet certain criteria.

Potential disadvantages

• If your business has employees, you must make contributions to the plan on their behalf.
• SIMPLE plans have lower annual contribution limits than other retirement plans for the self-employed.
• No withdrawals are allowed within the first 2 years of plan participation, including rollovers to other plans.

Defined benefit plans

Defined benefit plans tend to be a good option for individuals with extremely high self-employment income. They may also be ideal for those who need to save as much tax-deferred money as possible to catch up on retirement savings.

How defined benefit plans work

Defined benefit plans offer predictable income in retirement, and contributions are carefully managed to achieve this goal. Instead of relying on annual contribution limits set by the IRS, actuaries will calculate annual contributions based on the participant's age, compensation and length of employment.

Primary benefits of a defined benefit plan

• Higher annual contribution limits may allow participants to accumulate substantial retirement savings in a relatively short time.
• Compared to 401(k)s and other defined contribution plans, defined benefit plans ensure a more stable, predictable income in retirement.
• Loans may be permitted, depending on plan rules.

Potential disadvantages

• Defined benefit plans require use of an actuary to determine annual contributions, which is primarily why they can be expensive to set up and maintain.
• Annual filings with the IRS on Form 5500 are required.
• The business must make contributions for all eligible employees.
• Contributions are adjusted every year based on a variety of factors, which may require more funds than the business has available.
• Special taxes apply if the minimum contribution isn't met, which can be problematic in years when revenue and cash flow are lower.

The bottom line

Each of these retirement plans for the self-employed has specific advantages and disadvantages. The right option for you will largely depend on your current earnings, how much you want to contribute and whether you have any employees, along with a few other factors. A good first step is to speak with a financial professional for personalized advice. They can help you decide which self-employed retirement plan is right for you.