Self-Employed Retirement Plans
Self-employed people often have more retirement-account choices than they realize, but the choices are not interchangeable. The account that is easiest to open is not always the account that best fits a growing business, and the account with the largest possible contribution is not automatically the best choice for every owner.
Use this hub to understand the decision framework first, then move into the detailed Solo 401(k), SEP IRA and IRA guides. ExitPlan keeps current-year limits out of the core comparison so that changing rules can be reviewed in one place against official IRS guidance rather than becoming stale across many pages.
Solo 401(k): flexibility for an owner-only business
A one-participant 401(k) can allow an eligible owner to participate in two roles: employee and employer. That structure can create more contribution flexibility at certain income levels than an employer-only arrangement. It also brings plan-administration responsibilities that should be understood before opening the account.
The biggest gating question is whether the business has common-law employees who would need to be covered. If the business grows beyond the owner and spouse, the plan may need to change or become a broader employer plan.
- Best evaluated by owner-only businesses and spouses working in the business.
- May support Roth features depending on the provider and plan document.
- Requires attention to plan administration and filing obligations as assets grow.
SEP IRA: simpler administration with employer contributions
A SEP can be straightforward to establish and maintain. Contributions are generally employer contributions, and the formula applied to eligible employees matters when the business has staff. That can make a SEP attractive for some businesses and expensive for others.
A SEP decision should consider not only the owner's desired contribution but also whether employees are or may become eligible. The current IRS rules and plan documents should be reviewed before funding.
Traditional and Roth IRAs: important, but different tools
Traditional and Roth IRAs are personal retirement accounts, not employer plans. They can be useful for self-employed workers at many income levels, but eligibility for deductions or Roth contributions depends on current tax rules and household circumstances.
Do not treat Traditional versus Roth as a simple tax-rate prediction. Liquidity, current taxable income, future income, existing pre-tax balances and plan access can all matter. Use current IRS guidance and professional tax advice when the decision is material.
Use a decision sequence instead of chasing the biggest limit
First confirm eligibility and employee implications. Next decide how much the business can realistically contribute in an average year. Then compare administration, Roth availability, investment choices, provider costs and tax treatment. Finally, connect the account choice back to the actual retirement target so the account serves the plan rather than replacing it.
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See the contribution gap your retirement target creates before choosing the account that will hold the money.
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Frequently asked questions
Is a Solo 401(k) always better than a SEP IRA?
No. The better fit depends on business structure, employees, desired contribution flexibility, administrative preferences and tax circumstances.
Can I have an IRA and a self-employed retirement plan?
Often yes, but contribution deductibility and eligibility rules can interact with other retirement-plan coverage and income. Check the current IRS rules for your situation.
Do self-employed retirement limits change?
Yes. Contribution limits and related tax rules can change by year. ExitPlan links to official sources rather than hard-coding changing limits throughout the site.