Retirement Planning for the Self-Employed

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In the past, we’ve talked about the importance of being prepared for retirement. Of course preparation is different for everyone. For one, women will have different retirement needs and goals than men.

It also depends on what employment capacity you’re in. If you’re employed by a large company, for instance, you may have a retirement pension plan via your employer (though these sorts of perks from employers are disappearing). But what about planning for retirement if you’re self-employed?

According to various data sources, there are roughly 10 million self-employed Americans – from business owners and independent contributors to freelancing professionals. In a recent TD Ameritrade survey, around 55% reported they’re behind on retirement savings. On the whole, baby boomers have an average windfall of being $335,000 down from their retirement savings objective.

What, then, are the self-employed to do? Read on for some helpful tips.

Different Options for Self-Employed Americans

As a baseline, financial professionals recommend putting away tens of thousands of dollars if you can. But for many self-employed individuals, this may not be viable – putting away a few thousand in a retirement account will still help toward accumulating sufficient retirement funds.

There are a number of vehicles available to the self-employed in the form of retirement accounts:

• Roth IRAs – Roth IRAs are an ideal vehicle for many people, as account distributions once you turn 59.5 years old are tax-free. Contributions themselves aren’t tax-deductible, but in contrast traditional IRA account distributions are taxable. So there’s a tradeoff. The contribution limit is set at $5,500 for 2015 and 2016 – for people over 50, it’s set at $6,500.

• Traditional IRAs – In a traditional IRA, self-employed persons have the benefit of their contributions being fully deductible – however, they can’t have a spouse covered by a workforce retirement plan. In addition, contributions can’t exceed gross income. It’s also important to keep in mind distributions with this account are taxable once you hit 59.5.

• SEP IRAs – If your income exceeds $131,000, you can’t contribute to a Roth IRA. An SEP IRA or a Simple IRA may be good alternatives. They’re both accounts that are setup by an employer (the self-employed party, of course) for the employee (again, the self-employed person). An SEP IRA enables you to contribute up to 25% of your income, up to a maximum limit of $53,000.

With a Simple IRA, you can stock away all of your net earnings (which is calculated using an IRS-developed formula) up to $12,500 in 2015 and 2016. The account also allows for an “employer match” of up to 3% of income. For people who are 50 years old and above, they can put away up to $15,500.

• 401(k)s – A 401(k) may be another suitable option. Like with a Simple IRA, you can make contributions as employee and employer. The employee pretax limit for contributions for 401(k)s is set at $16,000 in 2015 and 2016; for people aged 50 and over, it’s set at $24,000.

What about High-Income Earners?

For people who are higher income earners or looking to meet retirement savings goals within the space of a few years, a defined-benefit plan may be ideal. However, this type of plan is complex. The maximum annual benefit for a defined-benefit plan is $215,000; calculations are made by an actuary and are based on numerous variables.

A defined-benefit plan also requires annual contributions. So it may not be a good fit for self-employed persons with variable income per year. For some-employed persons earning elevated income amounts, funding a defined-benefit plan and a 401(k) may be an ideal combination.

What’s the Takeaway?

It’s clear self-employed Americans have many options at their disposal. All of these selections should be investigated depending on your unique goals, current needs, and annual earnings. Unlike employed Americans, the self-employed don’t have anyone pushing them to plan for retirement. For best results, it’s best to seek out guidance from a capable financial professional.

At SafeMoney.com, we understand this begins with education. Please use the articles here for your enrichment. And when you’re ready for personal guidance, SafeMoney.com can help you. Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.

Frequently Asked Questions About retirement for the self employed

What retirement plans are best for self-employed individuals?

Self-employed individuals have several retirement plan options, such as a Solo 401(k) or a Simplified Employee Pension (SEP) IRA. These plans allow for higher contribution limits compared to traditional IRAs, enabling you to save more for retirement. Additionally, incorporating safe money alternatives like fixed annuities can provide guaranteed income during retirement.

How can I ensure a steady income in retirement as a self-employed person?

To ensure a steady income in retirement, consider diversifying your savings with safe money alternatives, such as fixed annuities. These products can provide guaranteed income for a specified period or for life, helping to mitigate the risks associated with market fluctuations. Additionally, establishing a solid retirement plan that includes both growth and income strategies is essential.

What are the tax benefits of retirement accounts for self-employed workers?

Retirement accounts for self-employed workers, like a Solo 401(k) or SEP IRA, offer significant tax advantages. Contributions to these accounts are typically tax-deductible, reducing your taxable income for the year. This allows you to save more effectively for retirement while potentially lowering your current tax burden.

How much should I save for retirement as a self-employed individual?

The amount you should save for retirement as a self-employed individual depends on your income and retirement goals. A common guideline is to aim for saving 15-20% of your income annually. It's also wise to include safe money alternatives in your strategy to ensure that you have a secure financial foundation as you approach retirement.

Take the next step, run the numbers with our free retirement calculators.

Updated May 2026: For 2025, self-employed individuals can contribute up to $70,000 to a Solo 401(k) — or $77,500 if age 50 or older — making it one of the most powerful tax-deferred retirement savings tools available to business owners and independent contractors.