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5 Retirement Plan Options for the Self-Employed

You’ve probably heard about the Great Reassessment. Millions of workers are leaving their jobs every month, searching for better opportunities or more fulfillment. While some are finding new jobs or retiring early, a survey found that almost a third of respondents quit to start their own business.

Whether you’re part of the wave of new entrepreneurs or have been freelancing for years, retirement planning is a little different for you. But it’s just as important to prepare for a secure and comfortable future. In this article, we’ll look at your retirement plan options, as well as other important factors to include in your long-term financial plans.

Retirement Plan Options for Self-Employed People

Self-employment provides a world of freedom. You set your schedule, decide who you work with, and run your business as you see fit. It also means you’re responsible for all of the decisions, though. Selecting a retirement plan is one of the bigger determinations you’ll have to make. However, there’s no HR department to handle the details, so it’s important to understand your choices.

The good news is that there are several retirement savings options for self-employed people, each with its pros and cons depending on your situation.

Solo 401k

401(k) plans aren’t just for big companies. Self-employed folks can set up individual 401(k)s for their business, as long as they don’t have any employees other than a spouse. You can contribute up to $61,000 or 100% of earned income, whichever amount is less. And you’re free to vary your contribution by year.  Thanks to the high limits and flexibility, a solo 401(k) is a great option for business owners who can and want to make large contributions in years where business is particularly good.

There’s an additional benefit for Solo 401(k)s if you are over age 50. If you are over the age of 50, you can make “catch-up contributions” which is an additional $6,500 a year you can put back for retirement. 


A Simplified Employee Pension Plan—usually called a SEP IRA—allows business owners to contribute to retirement accounts for both themselves and their employees. On the plus side, SEP IRAs have relatively high contribution limits and flexibility similar to solo 401(k)s, with less paperwork to deal with. However, if you have other people working for you, the contribution percentage must be equal for all employees. The costs can add up quickly if you have a lot of employees and are looking to massively boost your own retirement savings.


SIMPLE IRAs are similar to 401(k)s, in that both the employer and employee make contributions. However, they’re less flexible, as employer contributions are usually mandatory—even if the employee chooses not to contribute—and the early distribution penalty is much higher than other retirement account types, at 25%. With lower yearly contribution limits ($14,000 in 2022)—they aren’t as powerful as solo 401(k)s or SEP IRAs, but they can be a good option if you have more than a few employees but aren’t ready for the administrative costs of a 401(k).

Traditional or Roth IRA

Whether or not you set up a retirement plan for your business, you can still use a personal IRA. If you’re just opening your business or freelancing part-time, these accounts are a great starting point for retirement planning thanks to the lack of fees and paperwork involved. Before you open one, make sure to understand the tax implications and income limits when deciding between a Traditional or Roth IRA.

Defined Benefit Plan

Defined benefit plans—more commonly known as pension plans—have waned in popularity over the years. However, they can be advantageous for some business owners, as there’s no contribution limit. Pensions have a high administrative burden and lack the flexibility of solo 401(k)s, as you’re required to make specific annual contributions. But if you’re nearing retirement and able to commit to saving a lot every year, they can provide a huge boost to your nest egg.

Other Key Factors to Include in Your Financial Plans

Aside from choosing a retirement plan, entrepreneurs have other issues to keep in mind. Unlike a regular employee, you don’t have sick pay, vacation time, or unemployment and disability insurance to fall back on.

Thus, there are a few critical areas to keep in mind while managing your financial plans:

  • Budgeting discipline - Setting up a retirement plan is a big first step, but you need to make regular contributions. Set up a budget that allows you to contribute 15 - 20% of your pay towards retirement. Take advantage of your bank’s systems for automatically putting the money in savings so you’re not tempted to spend it.
  • Emergency savings - The past couple of years have shown how unpredictable life can be. And without safety nets like sick time or unemployment, you need to prepare for emergencies. Build up savings for both your business and six months of personal expenses, and make sure it’s easily accessible in a crisis.
  • Health care - Depending on the type of health insurance you have, HSAs can be a great way to boost your savings. They provide significant tax advantages and you can use them for a wide range of medical needs in retirement. It’s also important to plan for any long-term care you might need, as traditional insurance plans frequently don’t cover it.
  • Social Security - On top of your retirement accounts, you’re still eligible for Social Security. Self-employed people still pay into the Social Security system, with a 15.3% tax on their earnings that covers both the employer and employee contributions.
  • Tax deductions - Take advantage of as many tax deductions as you can. Home office costs are common—especially in the age of COVID—but a range of other monthly bills and equipment purchases qualify as business costs.

Preparing for Your Ideal Retirement

Planning for retirement when you’re self-employed can be complex. There are more decisions to make with implications for both your personal and business finances.

A fiduciary advisor can help you create a thorough financial plan that fits your business, lifestyle, and retirement goals. They can explain the ins and outs of all of your options, the tax implications, and help guide you as your situation changes over time. And since they’re legally obligated to act in their clients’ best interest, you can rest easy knowing their only goal is to help you on the way towards a bright financial future.


Want to make sure your financial plans are in order? Our retirement readiness quiz will help you determine the path to a secure and comfortable retirement.

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Disclaimer: Wealth Legacy Institute does not provide legal or tax advice. This communication is general in nature and should not be considered or relied upon as legal, tax or investment recommendation, or as a substitute for legal or tax counsel. Always consult with an attorney or CPA before making any tax, legal, or investment decisions. 

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