Without an employer matching your 401(k) contributions, retirement savings as a self-employed worker requires more initiative — but it also comes with more options. The three main plans for solo workers — Solo 401(k), Simplified Employee Pension Individual Retirement Account (SEP-IRA), and Savings Incentive Match Plan for Employees Individual Retirement Account (SIMPLE IRA) — each have different contribution limits, administrative requirements, and tax advantages.
Solo 401(k): The Most Flexible Option
A Solo 401(k) — also called an individual 401(k) — works like a regular employer 401(k), except you're both the employee and the employer. That means you can contribute from both sides:
- Employee deferral: Up to $23,500 (plus $7,500 catch-up if age 50+, or $11,250 if age 60–63 under SECURE 2.0)
- Employer profit-sharing: Up to 25% of net self-employment income (net profit minus half of SE tax)
- Combined maximum: $70,000 (not counting catch-up)
The employee deferral is the key advantage. At lower income levels, the flat dollar deferral lets you shelter significantly more than a percentage-only plan like a SEP-IRA.
Kai, age 35, earns $60,000 net from freelance web development. After subtracting half of SE tax (~$4,238), adjusted net SE income is ~$55,762.
- Solo 401(k): $23,500 employee + $13,940 employer (25% of $55,762) = $37,440
- SEP-IRA: $13,940 (25% of $55,762 — employer contributions only)
The Solo 401(k) lets Kai contribute $23,500 more. At a 22% marginal tax bracket, that saves roughly $5,170 in income tax this year alone.
Roth Option
Many Solo 401(k) providers allow Roth employee deferrals. The contribution doesn't reduce your taxable income today, but all future growth and withdrawals are tax-free. The employer profit-sharing portion is always pre-tax (traditional). For more on the Roth vs. traditional decision, see the Roth vs Traditional article.
SEP-IRA: Simpler, but Limited
A Simplified Employee Pension IRA is the easiest self-employed retirement account to set up — you can open one at any brokerage in minutes, and there's almost no ongoing paperwork.
- Maximum: 25% of net SE income, up to $70,000
- No employee deferral — employer contributions only
- No Roth option
- No catch-up contributions
Myth: "A SEP-IRA lets you contribute 25% of your gross revenue."
Reality: The 25% is applied to net self-employment income — your Schedule C profit minus the deductible half of SE tax. For sole proprietors, the effective rate works out to about 20% of net profit before the SE tax deduction.
When SEP-IRA Wins
SEP-IRAs are best for high earners who want simplicity. If your net SE income is above roughly $350,000, the Solo 401(k) and SEP-IRA cap out at the same total contribution — and the SEP-IRA is easier to maintain. They're also useful if you have employees (a Solo 401(k) requires no full-time employees other than yourself and your spouse).
SIMPLE IRA: The Middle Ground
A SIMPLE IRA is designed for small businesses with 100 or fewer employees. For solo workers, it's rarely the best choice — the contribution limits are lower than both the Solo 401(k) and SEP-IRA.
- Employee deferral: Up to $16,500 (plus $3,500 catch-up if 50+)
- Employer match: Dollar-for-dollar up to 3% of compensation
- No Roth option (for most plans)
The main scenario where a SIMPLE IRA makes sense is when you have employees and want a plan that's cheaper to administer than a full 401(k), but still offers employee deferrals.
Side-by-Side Comparison
| Feature | Solo 401(k) | SEP-IRA | SIMPLE IRA |
|---|---|---|---|
| Employee deferrals | Yes ($23,500) | No | Yes ($16,500) |
| Employer contributions | Up to 25% of net SE income | Up to 25% of net SE income | Up to 3% match |
| Combined max | $70,000 | $70,000 | ~$20,000 |
| Roth option | Yes (employee portion) | No | No (rare) |
| Catch-up (50+) | $7,500 | None | $3,500 |
| Employees allowed | No (owner + spouse only) | Yes | Yes (≤ 100) |
| Admin complexity | Moderate | Low | Low |
| Loan provision | Yes (plan-dependent) | No | No |
Open the Solo 401(k) Calculator and enter your net self-employment income. Compare the Solo 401(k) vs SEP-IRA contributions side by side, and see how the growth projection differs over 20 years.
Which Plan Should You Choose?
- Solo 401(k) if you want to maximize contributions, want a Roth option, or earn under ~$350,000 (where the employee deferral makes the biggest difference).
- SEP-IRA if you want zero paperwork, have employees, or earn enough that the 25% employer-only contribution already hits the cap.
- SIMPLE IRA only if you have employees and want a plan simpler than a 401(k) but still offering employee deferrals.
- A Solo 401(k) gives you the highest contribution ceiling at most income levels thanks to the employee deferral component.
- A SEP-IRA is the simplest to set up and maintain — just employer contributions up to 25% of net SE income.
- The 25% employer rate applies to net SE income after the SE tax deduction — not gross revenue.
- SECURE 2.0 added a super catch-up contribution for ages 60–63: $11,250 vs. the standard $7,500.
If you're self-employed or considering it, how much of your income could you realistically defer into a retirement account? Use the Solo 401(k) Calculator with your actual numbers — the tax savings might surprise you.