Retirement Plans for Self-Employed Workers and Small Business Owners

For self-employed individuals, small business owners, and gig workers, establishing a robust retirement plan is crucial. The Solo 401(k), also known as an Individual 401(k), is tailored for sole proprietors without employees, except for a spouse. In 2025, the employee contribution limit is set at $23,500, with an additional catch-up contribution of $7,500 for those aged 50 and above. Notably, individuals aged 60 to 63 can make a “super catch-up” contribution of up to $11,250, allowing for a total contribution of $34,750. Employers can also contribute up to 25% of compensation, bringing the combined employee and employer contribution limit to $70,000. The inclusion of a Roth 401(k) option permits after-tax contributions, enabling tax-free withdrawals in retirement.

Another viable option is the Simplified Employee Pension (SEP) IRA, which is straightforward to establish and administer. For 2025, the SEP IRA contribution limit is the lesser of 25% of compensation or $70,000. This plan is similar to Solo 401(k) though is a bit less flexible (see Solo 401(k) vs. SEP IRA: Which is Better for the Self-Employed?)

Many self-employed individuals and part-time workers are unaware that they can contribute more to retirement plans than those with traditional full-time employment. For example, in 2025, the Solo 401(k) allows total contributions of up to $70,000, combining employee and employer contributions. In a self-employment situation, since the employer (yourself) contributions are effectively part of your overall earnings, the combined employee and ‘employer’ contributions essentially represent your total contributions. In the case of a SEP IRA, only the ‘employer’ contribution (which is made by yourself) is allowed. In contrast, traditional 401(k) plans have a lower contribution limit of $23,500 for employee deferrals. This significant difference enables self-employed individuals to reduce their taxable income more substantially, offering a considerable tax advantage over standard workplace retirement plans.

Importantly, these retirement plans are not exclusive to those solely self-employed. Individuals who maintain full-time employment while earning additional income through side gigs or small businesses can also participate. For instance, a Solo 401(k) allows contributions as both an employee and employer, maximizing retirement savings from multiple income streams. This dual contribution capability makes these plans adaptable and advantageous for a diverse range of earners.

Simply put, gig workers, self-employed individuals, sole proprietors, and small business owners can potentially access much higher tax-deferred benefits than regular employees ($70,000 vs $23,500)—something many people are unaware of!

Resources on Solo 401(k) and SEP IRA

Solo 401(k) Maximum Contribution Calculator
Solo 401(k) vs. SEP IRA: Which is Better for the Self-Employed?
Solo 401(k) Annual Contribution Limits: Employee and Employer Contributions
Maximize Tax-Deferred Retirement Savings Beyond the $69,000 ($70,000 for 2025) IRS Limit
How To Fully Utilize Self-Directed IRAs For Retirement Investments
Solo 401(k) FAQs
SEP IRA FAQs

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