Posted in Triplett & Carothers on May 2, 2025

Working for someone else will not necessarily guarantee you a retirement plan, as the financial and administrative costs of providing a retirement program can be prohibitive for smaller employers. But if you are self-employed (whether full time or part time) there is no reason you cannot fund your own retirement and reap the tax benefits associated with such plans. Below are some options you may want to consider.

Traditional or Roth individual retirement accounts

There are many types of individual retirement accounts. A traditional IRA is a tax-advantaged personal savings plan for which contributions may be fully or partially tax deductible, depending on your filing status and income. Generally, amounts in your traditional IRA (including earnings and gains) are not taxed until you take a distribution from your IRA.

A Roth IRA is a tax-advantaged personal savings plan for which contributions are not deductible but qualified distributions may be tax free. The amount you can contribute depends on your filing status and your modified adjusted gross income.

Simplified employee pension

A SEP plan can provide a significant source of income at retirement by allowing you to set aside money in a retirement account for yourself. A SEP does not have the startup and operating costs of a conventional retirement plan, and it allows for flexible annual contributions, which is helpful if cash flow is an issue. Total contributions cannot exceed 25% of your net earnings from self-employment, up to a maximum of $69,000 for 2024 ($70,000 for 2025).

You can either establish the plan with a simple one-page form, Form 5305-SEP, Simplified Employee Pension — Individual Retirement Accounts Contribution Agreement, or an IRS-approved “prototype SEP plan” offered by many mutual funds, banks and other financial institutions. You will also need to open a SEP-IRA at a bank or other financial institution.

Savings incentive match plan for employees

A SIMPLE IRA plan is an IRA that follows the same investment, distribution and rollover rules as a traditional IRA. If you are a sole proprietor (i.e., a Schedule C filer) and have a SIMPLE IRA plan, you are treated as both an employer and an employee when calculating and reporting your own plan contributions and limits. All or some of your net earnings from self-employment up to $16,000 for 2024 or $19,500 if age 50 or older ($16,500 and $20,000 for 2025) may be contributed to your SIMPLE IRA plan.

Additionally, if you have employees, a SIMPLE IRA plan provides you with a simplified method to contribute toward your employees’ retirement. Providing such retirement benefits can help you retain talented employees. Employees may choose to make salary reduction contributions and, as the employer, you are required to make either matching or nonelective contributions.

401(k) plans

As the self-employed owner of your own business, you can participate in your own 401(k) plan. A one-participant 401(k) plan is sometimes referred to as a Solo 401(k).

The solo 401(k) plan is a traditional 401(k) plan covering a business owner with no employees, or covering that owner and his or her spouse. These plans have the same rules and requirements as any other 401(k) plan. However, in this type of plan, the business owner wears two hats: employer and employee. Contributions can be made to the plan in both capacities.

Thus, as the self-employed owner, you can make elective deferrals of up to 100% of earned income up to the annual contribution limit and, if age 50 or over, higher limits (generally an additional $7,500) apply.

• For 2024, those amounts are $23,000, or $30,500 if age 50 or over at the end of 2024.
• For 2025, those amounts are $23,500, or $31,000 if age 50 or over.
• However, for 2025, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in these plans. For 2025, this higher catch-up contribution limit is $11,250 instead of $7,500.

Also, as the owner-employee, you can make nonelective contributions. These are contributions that an employer makes for each eligible participant, whether or not the participant decides to make a salary deferral to his or her 401(k) account. However, if you are also making nonelective contributions, a special computation must be made to calculate the maximum amount of elective deferrals and nonelective contributions you can make for yourself.

Additionally, if you hire employees and they meet the plan eligibility requirements, you must include them in the plan and their elective deferrals will be subject to nondiscrimination testing (unless the 401(k) plan is what is known as a “safe harbor plan” or other plan exempt from testing).

Because the deadlines for making contributions to a retirement plan vary according to the retirement plan you choose and because some of the calculations relating to certain plans can become quite complicated, it’s best to work with a tax or retirement professional to ascertain the maximum amount you can deduct and, if you take on employees, to ascertain that any nondiscrimination testing requirements that may apply have been satisfied.

Reach out to Roz Carothers and her team at Triplett & Carothers to learn more.

©2025