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When you work for yourself, nobody enrolls you in anything.
No HR packet, no payroll deduction, no match. You are the employer and the employee, which means the retirement plan is yours to open or yours to skip. When my grandmother asked me "So what's your retirement plan?", the first thing I realized was that I did not even know what accounts a business of one could open. If that is you, this is the map.
What retirement accounts can a one-person business open?
More than most owners think. The IRS page for self-employed people lists a SEP IRA, a SIMPLE IRA, a solo 401(k), profit-sharing and money purchase plans, and defined benefit plans.2 Each has its own contribution rules and its own setup deadline. On top of those, you can open an individual retirement account on your own, and the 2024 IRA limit is $7,000, or $8,000 if you are 50 or older.1
Here is how the four that matter most to a typical solo online owner break down.
The IRA, the starting point
An IRA is the simplest account to open, and it does not depend on your business at all. The limit is much lower than the business plans, so many owners treat it as a first step or a supplement, not the whole plan.
The SEP IRA, the simple one
"SEP" stands for Simplified Employee Pension, and it lives up to the name. The IRS says only the employer contributes, and employees cannot.4 For you, that means the contribution comes from the business side.
Contributions are flexible: you are not required to contribute every year, which suits an owner whose income swings.4 For 2024 the IRS lists up to 25 percent of net self-employment earnings (not counting your own contribution), capped at $69,000.2 The calculation for self-employed owners is a special worksheet in IRS Publication 560, and it comes out lower than 25 percent of your profit, so let a tax professional run it.
The catch arrives when you hire. If you contribute for yourself, you must contribute the same percentage for all eligible employees, and participant loans are not permitted.4
The SIMPLE IRA, the one with a window
The SIMPLE IRA lets you defer your own earnings and requires an employer contribution of either a 2 percent fixed amount or a 3 percent match. For 2024 the IRS lists deferrals of up to $16,000, plus a $3,500 catch-up if you are 50 or older.2 You set it up between January 1 and October 1, unless you became self-employed after October 1, in which case you set it up as soon as administratively feasible after the business starts.2
The solo 401(k), the one with two hats
A solo 401(k) is the same kind of plan big companies offer, built for an owner with no employees other than a spouse.3 As the employee, you can defer up to 100 percent of your earned income, subject to the annual limit: $23,000 for 2024, plus a $7,500 catch-up if you are 50 or older.12 As the employer, you can add a nonelective contribution of up to 25 percent of compensation. For a self-employed owner that is a special computation based on net earnings after half of your self-employment tax and your own contributions.3
Because both hats contribute, the total can reach $69,000 for 2024, with the catch-up on top.2 The IRS also notes that a solo 401(k) can permit loans and hardship distributions.2 The tradeoff is paperwork: a plan with $250,000 or more in assets at year end generally must file an annual report on Form 5500-EZ.3
Brian Preston and Bo Hanson of The Money Guy Show covered a wrinkle in a video posted on February 22, 2024: if you also have an employer plan, the salary deferral limit is shared across your jobs. On the profit-sharing side, they said:
It's a huge way to shield ordinary income taxes even if you can't do more salary deferral.
Two hosts answering a viewer's question is not a plan for you. I include it because it shows why the numbers above depend on what you already contribute elsewhere, and that is a question for a licensed professional.
How do the two big business plans compare?
| SEP IRA | Solo 401(k) |
|---|---|
| Only the employer contributes | You contribute as employee and as employer |
| Flexible from year to year | Flexible, with a $23,000 employee deferral limit in 2024 |
| Can be set up as late as the tax filing deadline, with extensions | Setup and funding timing is more involved, so confirm dates with your provider |
| Simple form, light admin | More paperwork, and Form 5500-EZ at $250,000 in assets |
| No participant loans | May permit loans |
| Equal contributions for eligible employees if you hire | Built for an owner with no employees other than a spouse |
Which questions narrow the field?
You choose by asking better questions, and you take the answers to a licensed professional.
- How steady is my income? A SEP's flexibility suits swings. A solo 401(k) is flexible too, but its employee side rewards owners who want to put in a lot at a lower income.
- Am I likely to hire? A SEP's equal-contribution rule applies to eligible employees, and a solo 401(k) is only designed for an owner with no employees other than a spouse.
- How much admin will I actually do? The best account is the one you set up and keep funding.
- When do I need to act? SEP timing runs to the tax filing deadline, and a SIMPLE IRA has its October 1 window. Ask your provider for the dates that apply to a solo 401(k).
- What does my tax professional say? Contribution calculations for self-employed owners are not obvious, and they interact with the rest of your taxes.
What is the mindset that makes any account work?
Picking the plan you can actually fund and keep. That is the same instinct as counting the cost before you build: the tower you finish beats the bigger one you abandon.
I still watch owners spend weeks debating accounts and never open one. A good account you fund beats the perfect account you are still researching. If you can do only one thing this month, book the conversation. The Investing and Retirement hub has more foundations on the way.
Educational content, not financial, tax, legal or investment advice. Talk to a licensed professional about your situation.
Keep building.Ekai
Questions people ask
What retirement accounts can a self-employed person open?
The IRS lists several plan types for self-employed people, including the SEP IRA, the SIMPLE IRA, the solo (one-participant) 401(k), profit-sharing and money purchase plans, and defined benefit plans. Individuals can also open a traditional or Roth IRA on their own.
What is the 2024 contribution limit for a solo 401(k)?
For 2024 the IRS lists employee salary deferrals up to $23,000, plus a $7,500 catch-up if you are 50 or older, plus an employer contribution of up to 25 percent of compensation, with a $69,000 total cap not counting catch-up.
When can I set up a SEP IRA or a SIMPLE IRA?
The IRS says you can set up a SEP for a year as late as the due date, including extensions, of your business tax return for that year. A SIMPLE IRA is set up between January 1 and October 1, with an exception for people who become self-employed after October 1.
Can I have a solo 401(k) if I have employees?
A one-participant 401(k) is designed for an owner with no employees other than a spouse. If you hire, your plan options change, so talk to a plan provider or tax professional before you do.
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