Retirement Plans for the Self-Employed
Solo 401(k), SEP-IRA, profit sharing, and beyond — how to choose the plan that lets you save (and defer) the most each year.
Reviewed by Alexander Tecle, MBA, MS Taxation
President & Founder · Verify on SEC IAPD (opens in a new tab)
Reviewed
Your business shapes the plan
Owner goals
Start with compensation and the retirement benefit you want to build.
Your team
Employee ages and compensation affect the design.
Funding capacity
Review the ongoing commitment alongside your cash flow.
If you're self-employed or run a small business, the retirement plan you choose directly determines how much you can save, and how much tax you defer, each year. The right plan can let you set aside many times more than a personal IRA.
This guide compares the main options, explains contribution limits, and shows when it's time to graduate to a more powerful plan like a cash balance pension.
On this page
Calculators
| Limit | 2026 | 2025 |
|---|---|---|
| 401(k) / 403(b) employee contribution | $24,500 | $23,500 |
| Catch-up contribution (age 50+) | $8,000 | $7,500 |
| Higher catch-up (ages 60–63)Unchanged for 2026 (SECURE 2.0). | $11,250 | $11,250 |
| Total additions to a defined contribution plan — IRC 415(c)Employer + employee; excludes age-based catch-up. | $72,000 | $70,000 |
| SEP-IRA maximum (lesser of 25% of compensation or this) | $72,000 | $70,000 |
| SIMPLE IRA employee contributionUp to $18,100 for certain small employers (SECURE 2.0). | $17,000 | $16,500 |
| Traditional / Roth IRA contribution | $7,500 | $7,000 |
| IRA catch-up (age 50+) | $1,100 | $1,000 |
Official IRS figures for 2026. Source: IRS Notice 2025-67 (IR-2025-111).
SEP-IRA vs. Solo 401(k)
A SEP-IRA is simple to set up and lets you contribute a percentage of compensation. A Solo 401(k) usually allows larger contributions at the same income (combining an employee deferral with an employer contribution) and supports Roth and loan features. For many owners with no full-time employees, the Solo 401(k) is the stronger choice.
Adding profit sharing
Pairing a 401(k) with a profit-sharing contribution increases how much the business can set aside for owners, within IRS limits. Thoughtful plan design (including cross-tested formulas) can weight contributions toward owners while still meeting nondiscrimination rules.
Contribution limits — and when to level up
The IRS sets annual limits that change each year and depend on your age and compensation. Once you're maxing a 401(k)/profit-sharing plan and want to defer even more, a cash balance (defined benefit) plan can dramatically raise the ceiling — see the Cash Balance Plans guide.
Cash balance plans for sole proprietors and single-member LLCs
A sole proprietor or single-member LLC can sponsor a cash balance plan without forming a corporation. Because the business and the owner are the same taxpayer, the mechanics differ from the S-Corp version in three ways.
The deduction. Contributions for the owner are claimed on Schedule 1 (Form 1040), Part II, rather than on a business return, while contributions for employees go on Schedule C.
Self-employment tax. The pension deduction reduces income tax but not the self-employment tax base, because SE tax is computed on net earnings before the retirement deduction. An S-Corp owner gets no FICA saving from a plan contribution either, but can set the W-2 level; a sole proprietor cannot, which is one reason high earners compare the two structures before adopting a plan.
The circularity. Plan compensation for a sole proprietor is earned income, which is net profit reduced by half of the self-employment tax and by the plan contribution itself, so the contribution and the compensation it is based on have to be solved together. The actuary handles the algebra, but the effect is that the same profit supports a somewhat smaller contribution than an equal W-2 would.
Start with net profit
The calculation begins with the owner's net earnings from self-employment.
Adjust earned income
Half of self-employment tax and the plan contribution affect the compensation base.
Solve the circular amount
The actuary solves the contribution together with the earned income on which it depends.
Claim the deduction
The owner contribution is claimed on Schedule 1 while employee amounts remain on Schedule C.
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Frequently asked questions
SEP-IRA or Solo 401(k) — which is better?
Both are for self-employed owners. A Solo 401(k) generally allows larger contributions at the same income and supports Roth contributions and loans; a SEP-IRA is simpler but the contribution is purely a percentage of compensation.
Can I have both a 401(k) and an IRA?
Often yes, although your IRA deduction may be limited at higher incomes if you're covered by a workplace plan. The two can work together to increase total tax-advantaged savings.
How much can a self-employed person contribute?
It depends on your plan type, age, and net earnings, and the IRS updates limits annually. A Solo 401(k) with profit sharing allows far more than an IRA, and a cash balance plan can go higher still.
Can a sole proprietor have a cash balance plan?
Yes. The plan is adopted by the business, the owner's contribution is deducted on Schedule 1 of Form 1040, and plan compensation is net earned income after half of the self-employment tax and the contribution itself. The deduction does not reduce self-employment tax.
Sources
- IRS — Retirement plans for self-employed people (opens in a new tab)
- IRS — One-participant 401(k) plans (opens in a new tab)
- IRS Publication 560 — Retirement Plans for Small Business (opens in a new tab)
- IRC §408 — SEP-IRAs and individual retirement accounts (opens in a new tab)
- IRC §1402 — net earnings from self-employment (opens in a new tab)
- IRC §404 — deduction limits for employer contributions (opens in a new tab)
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See what your practice could fund
Model a contribution for an owner in your field from age and compensation alone. The result is an illustration with its assumptions shown, not a quote.
This guide is educational and is not individualized tax, legal, or investment advice. Contribution limits and tax rules change annually and depend on your specific situation; figures are illustrative. Consult a qualified professional before acting.