Comparison of Self-Employment Retirement Plan Options

Self-employed individuals are in a unique position when saving for retirement. Instead of being limited to the retirement plan options offered by their employers, self-employed individuals take that decision into their own hands. Before making this decision, it is important to understand the characteristics, benefits, and limitations of each plan option before deciding which route is best for you.

Type of Account Employee Contribution Limit Employer Contribution Limit Catch-Up Contributions
SEP IRA Not eligible 25% of employee's compensation or
20% of modified net profit for unincorporated business owners.
Max for 2024: $69,000
Not permitted
Solo 401(k) $23,000
25% of employee's compensation or
20% in the case of a sole proprietor or Schedule C taxpayer.
Max for 2024: $69,000
$7,500 in 2024 for individuals over the age of 50
SIMPLE IRA $16,000
If participating in an employer plan, total contributions across plans cannot exceed $23,000.
3% of compensation $3,500 in 2024 for individuals over the age of 50

All contribution limits and rates in the above table are based on 2024 IRS tax rules.

While contribution limits are an essential difference between the three self-employment retirement plan options, they should not be the only consideration. Ease of set up and operation, flexibility, and reporting requirements are just a few of the key variables to these plans that should be acknowledged and considered prior to decision making. Each self-employed individual is unique in their needs and capacity to take on additional responsibilities, like annual reporting.

Type of Account Pros Cons
  • Easy to set up and operate
  • Low administrative costs
  • Flexible annual contributions
  • Generally, no filing requirements
  • Employer must contribute equally for all eligible employees
  • Employer contribution only
  • Participant loans not permitted
Solo 401(k)
  • Contributions can be made as an employer and employee
  • Owner can contribute 100% ("earned income") up to the annual contribution limit
  • Employer nonelective contributions up to 20% of compensation as defined by the plan for sole proprietor or Schedule C taxpayer
"Earned income" - defined as net earnings from self-employment after deducting both: one-half of your self-employment tax and contributions for yourself
  • Nondiscrimination testing required as soon as there is another employee
  • If employees are hired and meet eligibility requirements, the employer must include them in the plan and their elective deferrals will be subject to nondiscrimination testing
  • A 1-participant plan is generally required to file an annual report on Form 5500-EZ if it has $250,000 or more in assets at the end of a year
  • Inexpensive to set up and operate
  • Employees share responsibility for their retirement
  • No discrimination testing required
  • Employees may contribute in addition to employer contribution
  • Generally, no filing requirements
  • Inflexible contributions
  • Lower contribution limits than some other retirement plans
  • Employer must contribute
  • Participant loans not permitted

Retirement plan options are not one-size-fits-all, so it is important to weigh all your options and make an informed decision based on your individual goals and needs. If you are self-employed and want to learn more, please contact a One Day In July advisor.

For more information, please visit the IRS website for each account type:
Solo 401(k) -

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