Self-Employed Tax

The Go-To Self-Employed Retirement Guide

October 10, 2014 : Kelly Whalen - Guest Contributor

Ed note: Saving for retirement can be daunting. Saving for retirement without a company-sponsored plan can seem impossible. There are several self-employed retirement plan options out there, but you’ll have to decide what works best for you.

When you are self-employed, your retirement options may seem confusing. Without a company 401(k) or pension plan to fall back on, it may seem daunting to save on your own.

As a freelancer, saving for retirement requires a bit more work and planning. While researching options may not be at the top of your to-do list, it’s worth your time. A little preparation now will ensure a bright future as you age.

Here are three main options to consider when saving for retirement:

Solo 401K 

The Solo 401(k) allows you to choose funds just like a regular 401(k) plan. The difference is you can contribute much more to a Solo 401(k) and setup is simplified. Just complete a few forms, and you’ll be ready to go!


  • A Solo 401(k) is inexpensive.
  • Your spouse can also set up one up, allowing you to double your savings.
  • After setup, you can it manage through regular contributions or a one-time deposit.
  • High contribution limits allow you to add more to a Solo 401(k) than any other retirement plan for the self-employed.
  • With a Solo 401(k), you can easily rollover your old 401(k)s from past employers to compound savings.
  • Solo 401(k)s also offer a Roth option, allowing you to save after-tax dollars. As a result, you won’t be taxed when you withdrawal your funds.
  • While not recommended, it is possible to borrow from many Solo 401k accounts should the need arise.


  • If you have more than $250,000 in your Solo 401(k), you’ll have to file Form 5500 with the IRS each year come tax time, meaning more paperwork come tax season.
  • You’re only allowed one 401(k). If you have a traditional 9 to 5 job, choose your employer-sponsored 401(k) to get the ‘free’ matching money.

Contribution Limits: $17,500 (plus an additional $5,500 if you’re 50 or older) plus 20% of net earnings up to $52,000. Your spouse can contribute the same amount.

Dates to Know: Setup by December 31, but you can contribute until April 15 of the following year.

SEP (Self-Employed Pension) IRA

SEP IRAs are a low cost option for small business owners and their employees, only the employer contributes.


  • It’s quick and easy to set up! Just file Form 5305with the IRS and open a SEP-IRA at the bank or financial institution of your choice.
  • An SEP plan can be opened as late as the due date (including any extensions) of your income taxes for that year. So if you file on April 15, you can open up an account and contribute up to and including that date.
  • You can still open a SEP IRA if you have a ‘day job’ or 401(k).


  • If and when you’re over 50, there is no “catch up” perk to help you make up for lost time.
  • You can’t borrow or withdrawal funds from an SEP IRA until you are 59 ½.
  • You can’t use a SEP IRA if you have maxed out your employer 401(k) for the year.

Contribution Limits: Contribute as much as 25% of your net earnings up to $52,000.

SIMPLE (Savings Incentive Match Plan for Employees) IRA

While not ideal for most freelancers, this plan is best suited for self-employed people with employees.


  • SIMPLE IRAs are easy to set up with Form 5304 or a form from your bank or financial institution.
  • You can contribute up to $12,000 per year without limits on the percentage of your earnings.


  • You only have a limited ability to borrow. If you need to withdraw funds you’ll be hit with a 25% penalty if you take funds out in the first two years.
  • Annual fees can be as high as $300.
  • It must be opened by October 1.

Contribution Limits: Maximum of $12,000 per year (plus $2,500 extra per year if you’re 50 or older) and either a 2% fixed contribution or a 3% matching contribution.

Choosing a retirement vehicle when you’re self-employed may seem challenging, but the options are straightforward and simple to setup.

If you have employees you should consider a SIMPLE IRA. If you have a 401(k) already (from a day job or a previous job) you should setup a SEP IRA. For freelancers and self-employed individuals without employees and no 401(k) setup a Solo 401(k).

With these options in mind, consider talking to your financial advisor to find the best plan for your unique situation.

For more information on self-employed retirement options read this helpful guide from the IRS.

Kelly Whalen - Guest Contributor

Kelly Whalen - Guest Contributor

The Centsible Life

Kelly is the author of The Centsible Life, a blog designed to help you live the life of your dreams on a budget.

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