Being self-employed, like many aspects of life, has both advantages and disadvantages. One major advantage is access to tax-advantaged retirement accounts with high contribution limits, flexible investment options, and relatively easy administration. Read below about simple options that allow you to take the next step toward saving for your retirement.
What is a SEP IRA?
Do you have employees? Consider a SEP IRA.
A SEP IRA (Simplified Employee Pension Individual Retirement Account) is a good option for self-employed individuals, small business owners, or members of a partnership. SEP IRAs are funded exclusively by employer contributions and the same percentage must be contributed for each eligible employee. The maximum contribution is $70,000 for 2025, and the maximum compensation that can be considered for contributions is $350,000.
It’s important to note that there are no catch-up contributions allowed for individuals over 50 in a SEP IRA. Due to the Secure 2.0 Act, SEP IRAs now allow for Roth contributions; however, not all custodians offer this option.
Additionally, SEP IRAs are easy to manage since no special plan filings are required with the IRS, making this plan relatively simple to administer. Loans are not permitted, but the high contribution limits make it an attractive choice for many small business owners.
What is a Solo 401(k)?
If you’re the only employee in your business (or if your spouse works with you), a Solo 401(k) could be the best retirement plan option for you.
A Solo 401(k), also known as an Individual 401(k), allows both employer and employee contributions, enabling you to save more for retirement compared to a SEP IRA. The combined amount of employer plus employee contributions plus catch-up contributions cannot exceed $70,000 for the 2025 tax year if you are under 50, $77,500 if you are 50-59, and $81,250 if you are between 60-63. As an employee, you can contribute up to $23,500 in 2025 or 100% of compensation, whichever is less. As the employer, you can make an additional profit-sharing contribution of up to 25% of your compensation. The eligible compensation limit for 2025 is $350,000. Solo 401(k)s allow for a Roth contribution option, and loans ARE permitted.
If you have accumulated more than $250,000 in your solo 401(k) (great work!), be prepared to file an annual report using Form 5500-EZ.
What is a SIMPLE IRA?
If you have fewer than 100 employees, a Simple IRA might be the right choice for your business.
A Simple IRA (Savings Incentive Match Plan for Employees) is an employer-sponsored retirement plan that requires employers to contribute to their employees’ accounts. There are two ways this can be done:
- Matching employee contributions dollar-for-dollar up to 3% of the employee’s compensation (4% in some cases) up to either the annual contribution limit or what the employee contributed, whichever is less.
- Making a nonelective contribution
Contribution limits for a SIMPLE IRA are lower than those of a solo 401(k) and SEP IRA. In 2025, the employee contribution limits to a SIMPLE IRA are $16,500 for employees under 50 years old and $20,000 for employees 50 and older. The nonelective contribution is typically 2% of the employee’s compensation (3% in some cases) and is based on a maximum salary of $350,000 for 2025. SIMPLE IRAs are a great way to encourage your employees to be proactive about their own retirement savings as they take advantage of the employer match.
So, what is the right 401(k) option for me?
Not sure which option is right for your business? Choosing the right retirement plan for your business depends on several factors, including the number of employees, contribution limits, and your specific retirement goals. A financial advisor can analyze your professional and personal circumstances and help you decide which retirement plan makes the most sense for you. Feel free to reach out to our team if you have any questions or need further guidance on retirement planning options.
Sources: IRS.GOV, Investopedia.com, FMG, and Fidelity.com. TIAA.org
