A guide to self-employed retirement accounts

As a self-employed individual, you wear many hats. Whether you're a freelancer, small business owner, or contractor, you’re in charge of everything, from invoicing to taxes. But one crucial responsibility often gets overlooked‌ — ‌planning for retirement. 

Without the safety net of an employer-sponsored plan, planning and saving for retirement may seem overwhelming. At the same, it’s essential to build long-term financial security.

 The good news? There are plenty of retirement options tailored specifically to self-employed individuals like you.

In this guide, we’ll break down the best self-employed retirement accounts, including their benefits, contribution limits, and how to choose the right one for your situation. We’ll also explain how a global HR platform can help you grow your freelance business efficiently. 

Why retirement planning is different for the self-employed

When you're self-employed, no employer is matching your retirement contributions or managing your 401(k). You're fully responsible for selecting, managing, and funding your retirement plan. While that may sound daunting, it also offers flexibility. You have more control over how much you save, which account to use, and how your investments are handled.

However, the key difference is that you have to be proactive. There’s no automatic enrollment. It’s up to you to start, manage, and maximize your retirement accounts, making early planning even more critical.

Key self-employed retirement accounts to consider

There are several retirement plans designed specifically for self-employed individuals, each with its own perks. Here’s a breakdown of the most popular options:

1. Self-employed 401(k)

A self-employed 401(k) (also known as a Solo 401(k)) is a great option if you run a business with no employees (except possibly your spouse). It allows for high contributions because you act as both the employer and the employee. This plan offers some of the best 401k plans for small businesses due to its flexibility and high contribution limits.

• Contribution limits. For 2024, you can contribute up to $22,500 as an employee, plus an additional $7,500 if you're over 50. As the employer, you can also contribute up to 25% of your net self-employment income, for a total maximum contribution of $66,000.

• Who it’s best for. Solo entrepreneurs with high incomes looking for maximum tax-deferred savings.

2. SEP IRA (Simplified Employee Pension IRA)

A SEP IRA is another popular retirement plan for the self-employed, especially for those with employees. It’s easy to set up and manage, and contributions are made solely by the employer (you).

• Contribution limits. You can contribute up to 25% of your compensation or $66,000 (whichever is less) for 2024.

• Tax advantages. Contributions are tax-deductible, helping to reduce your taxable income.

• Who it’s best for. Self-employed individuals and small business owners looking for a simple, flexible option with high contribution limits.

When comparing self-employed 401(k) vs SEP IRA, the SEP IRA may be the better choice if you have employees or prefer less administrative work, while the 401(k) offers higher contribution limits for solo business owners.

3. SIMPLE IRA (Savings Incentive Match Plan for Employees IRA)

A SIMPLE IRA is ideal for small businesses with employees. While it has lower contribution limits than a SEP IRA or Solo 401(k), it offers ease of setup and management.

• Contribution limits. For 2024, you can contribute up to $15,500 as an employee, with an additional catch-up contribution of $3,500 for those over 50. Employers must either match employee contributions up to 3% of compensation or make a 2% non-elective contribution.

Who it’s best for. Small business owners with employees who want a simple and affordable retirement plan.

Comparing self-employed IRA contribution limits

One of the biggest factors when choosing a retirement plan is the contribution limit. Here’s a quick look at how the most popular options stack up:

Knowing the self-employed IRA contribution limits can help you make the most out of your retirement savings each year. For many high-income earners, maxing out contributions to a Self-Employed 401(k) or SEP IRA will allow them to significantly reduce taxable income.

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Self-employed 401(k) vs SEP IRA: Which plan should you choose?

Choosing between a self-employed 401(k) and an SEP IRA depends on your specific situation:

• Solo 401(k). Best for business owners with no employees (except a spouse) who want to maximize their contributions.

• SEP IRA. Better for those with employees, or who want a plan with minimal paperwork.

If your priority is high contribution limits and you're running a solo operation, a Solo 401(k) is probably the way to go.

How to maximize your contributions

Maximizing your contributions is one of the best ways to build a substantial nest egg. Here’s how to do it:

1. Start early. The earlier you start saving, the more time your money has to grow.

2. Contribute the max. Always aim to hit the contribution limit. For a Self-Employed 401(k), that could be as high as $66,000 annually.

Make catch-up contributions. If you’re over 50, take advantage of additional catch-up contributions to boost your retirement savings.

Frequently Asked Questions

What are the rules for self-employed IRA withdrawals? With a traditional IRA, you’ll pay income taxes on withdrawals after age 59 ½. Early withdrawals may be subject to a 10% penalty.

Can I contribute to both a Roth IRA and SEP IRA? Yes, you can contribute to both, as long as your total contributions don’t exceed IRS limits.

What’s the best plan for those with irregular income? A SEP IRA offers flexibility because contributions are made by the employer. You can adjust contributions based on your income in any given year.

Do you get benefits if you’re self-employed?

Self-employed individuals generally do not receive the same benefits package as traditional employees, but they may be eligible for certain benefits and protections depending on their location and circumstances. 

Here's an overview of some common benefits for self-employed individuals:

Social security and pension. In many countries, self-employed individuals are responsible for paying their own social security contributions, which can provide retirement, disability, and other benefits⁠. 

Health insurance. Self-employed individuals typically need to arrange their own health insurance. In some countries, there may be specific health insurance options or systems available for self-employed workers.

Tax advantages. Self-employed individuals may be eligible for certain tax deductions related to their business expenses⁠

Retirement savings. While they may not have access to employer-sponsored retirement plans, self-employed individuals can often contribute to individual retirement accounts or similar savings vehicles, sometimes with tax advantages⁠

Disability insurance. Self-employed individuals may need to purchase their own disability insurance to protect against loss of income due to illness or injury⁠

It's important to note that the specific benefits available to self-employed individuals can vary significantly depending on the country and local regulations. 

For example:

• In Canada, self-employed individuals must pay both the employer and employee portions of Canada Pension Plan premiums⁠.

• In the UK, self-employed individuals are liable for different classes of National Insurance Contributions⁠.

• In France, self-employed individuals have separate social security systems with particular rules for each benefit program⁠

Given the complexity and variation in benefits for self-employed individuals across different countries, it's advisable to consult with local tax and legal experts to understand the specific benefits and obligations in your area.

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Grow your business with Remote

Saving for retirement as a self-employed individual may seem like a complex task, but with the right plan, you can build a secure financial future. Explore your options, take advantage of the contribution limits, and remember‌ — ‌there’s no better time to start than today. 

When you’re running your own business, there’s a lot you’ll need to manage on your own — getting a freelance business license, creating contractor agreements, invoicing clients, and getting paid on time.

Remote’s Freelancer Hub can make your life easier by organizing your admin and giving you time back to focus on other tasks, whether it’s planning for retirement, finding clients, or growing your business. Our all-in-one platform allows you to manage clients, contracts, invoices, and payments quickly and easily.

Learn more about Remote’s contractor management platform designed for employers to recruit, pay, and manage freelancers. Or sign up for free today!