Key takeaways:
Self-employed individuals have multiple retirement plan options — such as solo 401(k)s, individual retirement accounts (IRAs), simplified employee pension individual retirement accounts (SEP IRAs), and Savings Incentive Match Plan for Employees (SIMPLE IRAs) — each with different contribution limits, tax benefits, and administrative requirements.
Solo 401(k)s and SEP IRAs generally allow higher contribution limits, making them attractive for maximizing tax-efficient retirement savings.
Traditional plans offer upfront tax deductions with taxable withdrawals later, while Roth IRAs provide tax-free withdrawals in retirement in exchange for after-tax contributions.
SIMPLE IRAs and SEP IRAs are designed for small businesses, with SEP plans offering flexibility in contributions and SIMPLE plans requiring consistent employer contributions.
Choosing the right plan depends on factors like income level, business size, savings goals, and desired flexibility, making professional financial guidance important.
Everyone knows the importance of saving for retirement. If you are one of the nearly 10 million self-employed individuals in the US in 2026, you can't rely on the benefits of employer-sponsored retirement accounts. You need to take charge of your own retirement and, sometimes, your employees. Retirement planning while self-employed starts with understanding how much you can afford to save, which requires a clear picture of your cash flow and business expenses. Thankfully, you have many options available to you. With a basic understanding of the types of self-employed retirement plans, including how to make catch-up contributions if you qualify, your hard-earned dollars can go just as far as they would in an employer's 401(k) plan. Here are answers to questions about the main types of self-employed retirement plans, including:
1. What is a solo 401(k)?
Also known as a self-employed or individual 401(k), it's an account for companies with a single employee. Think of it as a 401(k) plan with one participant — you — that lets you make pre-tax contributions to a retirement account. Once there, funds can be invested and grow tax-free until they are withdrawn in retirement. As a self-employed individual, you act as both the employer and the employee, so you can make both employer contributions and employee salary contributions, which may further lessen your taxable income.1 Solo 401(k)s have tax deferral features similar to other employer-sponsored 401(k)s, but you open, fund, and manage the plan on your own.
How much can I contribute to a solo 401(k)?
With a solo 401(k), your contributions are determined by your earned income and must stay within the annual contribution limits. This limit is reached by combining employee salary deferrals and employer contributions. Employee contributions are made as salary deferrals, allowing you to contribute a portion of your earnings before taxes, while employer contributions are based on a percentage of your compensation. For 2026, the maximum combined contribution to a solo 401(k) is $72,000, with a catch-up contribution of $8,000 for those over 50, totaling $80,000.2
You can contribute to both a solo 401(k) and a traditional or Roth IRA to boost your retirement savings. However, if your adjusted gross income (AGI) exceeds certain limits, the deductibility of your traditional IRA contributions may be reduced or eliminated due to your solo 401(k) participation.3
Who is a solo 401(k) appropriately suited for?
A solo 401(k) is opened, funded, and managed by you, independent of any employer involvement. This makes it an ideal vehicle for self-employed individuals with no employees, and the relatively high contribution limits (compared to an IRA) can help you build retirement savings faster. Note that if your spouse also works for your business, they are eligible for participation as well. If you think you'll be in a lower tax bracket come retirement, the tax-deferred aspect of a solo 401(k) is something to consider, as you'll be paying less taxes on this money when you begin distributions.
What are the tax implications of a solo 401(k)?
The tax implications of a solo 401(k) are essentially the same as an employer-sponsored 401(k). The contributions you make are considered tax-deferred and grow tax-free, and you are eligible to take distributions from the plan starting at age 59½. Any distributions you take are taxed as ordinary income. However, if you need to take money out of your solo 401(k) before the age of 59½, you will generally pay a 10% penalty in addition to being taxed on the distribution. Common exceptions include hardship withdrawals and qualifying medical expenses.4
How can I set up a solo 401(k)?
Any bank or financial institution that administers 401(k) plans should be able to help you open a solo 401(k). However, consider reviewing all your options with a financial advisor before setting up your plan and making any investment decisions.
2. What are traditional and Roth IRAs?
An individual retirement account, or IRA, is a tax-advantaged savings vehicle that is funded and managed by an individual, you, without any employer involvement. These are tax-advantaged accounts that can be used alongside other retirement plans, allowing you to maximize your retirement savings. There are two main types of IRAs:
In a traditional IRA, contributions are made with pre-tax dollars, reducing your taxable income for the year. Depending on your income and access to other retirement plans, you may be able to deduct contributions to further reduce your taxable income. Investment growth in the account is also tax-deferred, but taxes are paid on the back end, when you withdraw funds in retirement.
A Roth IRA is funded with after-tax dollars, so you don't get a tax deduction when you contribute. However, investment growth is income tax-free, and you can make income tax-free withdrawals during retirement, provided the account has been open for at least five years, and you are over 59½ years old, meaning that you keep all the gains.
How much can I contribute to my traditional or Roth IRA?
You determine your contribution amount, subject to limits that are significantly lower than those for a solo 401(k). For 2026, the maximum contribution is $7,500 (if you're under 50) plus a $1,000 catch-up (for those over 50), a total of $8,600. These contribution limits are per person, not per plan — so if you also have another traditional or Roth IRA (but not a 401(k)), the contribution limits apply to the combined amount for all your IRAs. Roth IRA contribution limits may be reduced or phased-out completely if your modified adjusted gross income is over certain thresholds (i.e., $242,000–$252,000 for married filing jointly in 2026).5 Contributions for each calendar year can be made until the federal income filing deadline.
Who is a traditional IRA appropriately suited for? And who should consider a Roth IRA?
All IRAs can provide tax advantages that help you save more over time, but the choice typically comes down to the tax bracket you expect to be in after you retire:
If you think you'll be in a lower tax bracket in retirement, a traditional IRA is likely a better choice because the pre-tax contributions lower your taxable income during your working years.
If you think you’ll be in a higher tax bracket in retirement, a Roth IRA may be better for you because the money you withdraw in retirement is free of income taxes, provided the withdrawals are qualified distributions.6
What are the tax implications of a traditional or Roth IRA?
Both kinds of IRAs provide tax advantages as you save for retirement; the key distinction is whether you realize the bulk of those benefits on the front end as you contribute during your working years (with a traditional IRA) or on the back end as you take withdrawals in retirement (with a Roth IRA). Also, there is typically a penalty of 10% for early withdrawals (before age 59½) from both types of accounts, but with a traditional IRA, the penalty (and regular income tax) applies to the entire withdrawal amount, and in a Roth IRA you can withdraw contributions (but not earnings) early without being subject to income tax and the penalty.
How can I set up a traditional or Roth IRA?
Many banks and financial institutions (such as brokerages) can help you open either kind of IRA. However, consider reviewing all your options with a financial advisor before setting up your plan and making any investment decisions.
3. What is a SEP IRA?
A SEP IRA stands for simplified employee pension and is a small business retirement plan designed for self-employed people and small business owners. A SEP IRA allows for higher contributions than a traditional IRA and contributions are fully tax deductible for the employer, reducing the taxable income. Like a traditional IRA, contributions are made with pre-tax dollars (which reduces taxable income), funds in the account grow tax-deferred, and income taxes are paid when you withdraw funds in retirement. Withdrawals from a SEP IRA are taxed as ordinary income in retirement; however, it offers the potential for significantly higher contributions than a traditional IRA.
Contributions to a SEP IRA are made by the employer for each eligible employee, and are subject to a special computation that takes into account factors such as the employee’s compensation and the employer’s business profits, thereby limiting the contribution amount. This not only lowers your taxable income if you are self-employed, but allows you as a small business owner to contribute to employees' retirement.7 It also enables employees to make investment decisions and manage their own accounts. A SEP IRA can be set up with minimal paperwork and does not require annual IRS reporting, making it easier to maintain than a 401(k). Additionally, you or your company can skip contributions in years when profits decline, as SEP IRA contributions are not required annually.
What are the contribution limits for SEP IRAs?
The SEP IRA contribution limit for 2026 is the lesser of $72,000 or 25% of your net self-employment earnings. Employers must contribute the same percentage of compensation for each eligible employee’s compensation. Some restrictions and limitations apply such as the factors mentioned above, but on the positive side, you can typically contribute to your SEP IRA and still contribute to a traditional or Roth IRA.
Who is a SEP IRA appropriately suited for?
A SEP IRA may be best suited for self-employed individuals or small business owners looking to make higher contributions than with a traditional or Roth IRA. This is partly because SEP IRA rules require that employers contribute an equal percentage of compensation to all eligible employees' accounts, including their own, allowing self-employed individuals to contribute to their own retirement while also contributing for their employees at an equal percentage. Additionally, setup and administration costs may be lower than for a solo 401(k).
What are the tax implications of SEP IRAs?
Like a traditional IRA or solo 401(k) plan, your SEP IRA contributions are fully tax deductible for the employer, reducing current-year taxable income. Like a traditional IRA, contributions are made with pre-tax dollars and funds grow tax-deferred until withdrawal. When you take distributions in retirement, your distributions are taxed as ordinary income. These plans are also subject to many of the same types of limitations; for example, withdrawals prior to age 59½ will typically be subject to income taxes and a 10% penalty.
How can I set up a SEP IRA?
Your accountant may be able to help you establish a SEP IRA by completing Form 5305-SEP. Many banks and financial institutions (such as brokerages) can help you as well. However, consider reviewing all your options with a financial advisor before setting up your plan and making any investment decisions.
4. What is a SIMPLE IRA?
A SIMPLE IRA stands for Savings Incentive Match Plan for Employees. These plans are intended for businesses with 100 or fewer employees (including sole proprietors). Unlike SEP IRAs, SIMPLE IRA plans require annual contributions, providing less flexibility than some other retirement plans because businesses cannot opt to skip contributions in a given year. Both the employer and employee can contribute to a SIMPLE IRA: employee contributions are made through salary deferrals, while employer contributions can be made in one of two ways8:
The employer makes a "nonelective" plan contribution of 2% to each eligible employee’s SIMPLE IRA. This contribution is based on the employee’s salary and is provided by the employer; it does not reduce the employee’s take-home pay.
Employers can also match employee contributions dollar for dollar, up to 3% of salary, which encourages employee participation in the plan.
How much can I contribute to a SIMPLE IRA?
If you are self-employed, you could contribute up to $17,000 in 2026, with an additional catch-up contribution of $4,000 to total $21,000 if you are over 50.9
What are the tax implications of a SIMPLE IRA?
Contributions made by the employer to a SIMPLE IRA are generally tax-deductible for the employer and are not subject to federal income tax withholding for employees. Employer contributions are tax-deductible for employees, reducing their taxable income. Like a traditional IRA, investments grow tax-deferred, and as distributions are made in retirement, they are considered ordinary taxable income. Early withdrawals before the age of 59½ are typically subject to a 10% penalty, which increases to 24% if taken within the first two years of participation, in addition to regular income tax.
How can I set up a SIMPLE IRA?
Your accountant may be able to help you establish a SIMPLE IRA, and many banks and financial institutions (such as brokerages) can help you as well. However, consider reviewing all your options with a financial advisor before setting up your plan and making any investment decisions.
5. What about defined benefit plans?
This is more commonly known as a pension plan. Investments in the plan are managed by the employer, and it provides a fixed benefit to retired employees based on factors like salary and length of service. These plans have very high contribution limits compared to other retirement plans, but they are complex to set up, are highly regulated, and generally impractical for small businesses and the self-employed. Defined benefit plans require an actuary to calculate annual contributions based on the participant’s age, compensation, and length of employment. They offer predictable income in retirement and are best suited for self-employed individuals with high income. These plans can be combined with other retirement plans to maximize retirement savings.
Defined benefit pension plans also fell out of favor with larger employers with the advent of 401(k) plans in the 1980s, which shifted the payment burden from employers to employees. However, some employers are beginning to offer these plans again as a way to attract top talent in highly competitive fields in which employees are high earners.
Guardian can help
There are many different ways to save for retirement and help safeguard your future. If you're unsure what to do, consider getting guidance from a financial advisor. If you don't currently work with one, Guardian can help. A Guardian financial advisor will listen to your needs, help define your goals, and work with you to better understand the retirement planning process and make the right decisions. Here's how to find someone near you:
Frequently asked questions about self-employed retirement plans
Self-employed individuals have a variety of options when it comes to saving for retirement, including traditional and Roth IRAs, solo 401(k) plans, a SEP IRA, and for some (such as those planning to take on employees), a SIMPLE IRA. Each type of plan has somewhat different features, tax benefits, and rules, but the deciding factor may come down to the amount you want to save each year: certain kinds of accounts (e.g., a solo 401(k) or SEP IRA) have much more generous contribution limits than others (such as a traditional or Roth IRA). Other factors to consider include administrative costs and fees, your income level, tax situation, retirement goals, and the need for flexibility. For these reasons, a self-employed individual or business owner needs to consult with a financial advisor or tax professional to understand which plan appropriately fits their personal needs and goals.
First, you need to decide which type of plan suits your needs best, based on your retirement savings goals and ability to make plan contributions. Next, find a financial institution that offers these plans and open an account. Typically, this process involves filling out a form with your personal and business details. Once your account is open, you can start making contributions, which are typically tax-deductible (with the exception of a Roth IRA). Consulting with a financial advisor can help to ensure your plan and contributions align with your retirement goals.
For 2026, the maximum amount that self-employed individuals can contribute goes up to $7,500, and individuals aged 50 or older can make an annual catch-up contribution of $1,000 for a total of $8,600.10
There's an enormous variety of investment options available to the self-employed and others. However, if you are looking for tax-advantaged asset growth without the contribution limits of IRAs and 401(k) plans, you may want to purchase an annuity or cash-value life insurance. Or, consider a way to help protect your financial future with disability insurance. This coverage can help protect your business and livelihood by providing benefits in the event of a serious illness or injury that keeps you from earning income.
Whether retirement is decades away or just over the horizon, it's good to know what you'll need — and where you currently stand. Use this retirement calculator to see whether you're on target, pretty close, or have veered off course.