Choosing a retirement plan when you're self-employed

\Self-employment brings flexibility and opportunity, but with it comes some trade-offs too. Without an employer's 401(k) to opt into, it's common for many self-employed people to not have a retirement plan that they active contribute to. This can introduce a huge opportunity cost, since qualified retirement plans come with tax advantages, in addition to encouraging the magic of compounding over time.

This post provides an overview of the different retirement account options, advantages, disadvantages, and the 2026 contribution limits you can use right now.

SEP IRA

A SEP IRA stands for Simplified Employee Pension plan. It is employer-funded, meaning someone who's self-employed would contribute on behalf of yourself and any eligible employees. You can open one even if you also participate in a retirement plan through another employer.

How to open one: Most brokers let you complete the SEP setup entirely online, and you keep the plan document for your own records. Contributions are made by you (the employer) by your tax filing deadline, including extensions.

The upside: It's the simplest plan out there. Minimal paperwork, no annual IRS filing for most small plans, and many providers charge no setup or annual fees. The contribution limit is generous—up to 25% of compensation, capped at $72,000 for 2026. You can also skip contributions in lean years, which makes it flexible for business income that varies.

The downside: Only the employer can contribute—there's no employee salary deferral option like a 401(k). If you have employees, you must contribute the same percentage for them as you do for yourself. There's also no Roth option; SEP IRAs are traditional (pre-tax) only.

2026 limits: Up to 25% of compensation, capped at $72,000. For self-employed individuals, this works out to roughly 20% of net self-employment earnings. You can also make a regular traditional or Roth IRA contribution on top of that—up to $7,500 (or $8,600 if you're 50 or older)—if you have enough earned income and meet the income limits.

SIMPLE IRA

A SIMPLE IRA stands for a Savings Incentive Match Plan for Employees. It's designed for small businesses that want a retirement plan without the complexity of a full 401(k), and it allows both employee salary deferrals and employer contributions—which makes it a step up from a SEP IRA if you want employees (including yourself) to be able to save directly from their paychecks.

How to open one: You must have 100 or fewer employees who earned at least $5,000 in the prior year. You can establish a SIMPLE IRA anytime between January 1 and October 1, so there's time to get one set up before year-end if you act early enough.

The upside: It's still relatively simple and low-cost. Employees can defer directly from their salary, which makes it more attractive if you have a small team. The employer must contribute either a 2% non-elective contribution for all eligible employees, or a 3% match for those who participate.

The downside: That mandatory employer contribution is also the main drawback—you cannot skip it once the plan is in place. It's also less flexible than a SEP IRA and has lower total contribution limits than a Solo 401(k). Though Roth contributions are now technically allowed in SIMPLE IRAs, many custodians are still working to support it—so in practice, most SIMPLE IRAs still operate as traditional, pre-tax plans.

2026 limits: Employees can defer up to $17,000, with a $4,000 catch-up for those age 50–59 or 64+, and a $5,250 super catch-up for those age 60–63. Employers with 25 or fewer employees may allow a higher deferral of $18,100, with a $3,850 catch-up for 50+. Combined with the employer match, total contributions can reach $20,000–$21,000+ depending on compensation and employer size.

Solo 401(k)

A Solo 401(k) is built for a business owner with no W-2 employees other than a spouse (1099 contractors do not count). It lets you contribute as both employee and employer, which presents the most savings of any self-employed plan.

How to open one: You must have no employees other than yourself and possibly your spouse. If you don't already have an Employer Identification Number (EIN), you'll need to get one from the IRS—this is quick and free online. Employee deferrals must go in by December 31, while the employer profit-sharing portion can wait until your tax filing deadline, including extensions.

The upside: This plan has the highest contribution potential of any self-employed plan. You can defer up to $24,500 as the employee, plus contribute up to 25% of compensation as the employer profit-sharing portion, for a total of up to $72,000 in 2026—or $80,000 if you're 50 or older. Many Solo 401(k)s also allow Roth contributions on the employee deferral side.

The downside: There's more to manage. You must adopt a formal plan, keep good records, and once the plan assets exceed $250,000, you'll need to file an annual IRS form. Some providers also charge setup or admin fees that SEP and SIMPLE IRAs don't always carry.

2026 limits: Employee deferral up to $24,500 (pre-tax or Roth), with a $8,000 catch-up for ages 50–59 and 64+, and a $11,250 super catch-up for ages 60–63. The employer profit-sharing portion is calculated as up to 25% of compensation, but the combined total of employee deferral plus employer profit-sharing cannot exceed $72,000 in 2026 (or $80,000 if you're 50 or older).

How spouses can accelerate savings

If your spouse also works in the business and receives compensation, they can participate in your retirement plan.

A married couple where both spouses are compensated by the business can each contribute up to $72,000 in 2026, for a combined maximum of $144,000! The actual max depends on each spouse's compensation level, since the employer profit-sharing portion is capped at 25% of their earnings. If your spouse works in the business and you use a SEP IRA or SIMPLE IRA, they can also participate under the same rules as any other eligible employee.

Other plans worth knowing about

A Traditional IRA and Roth IRA can be used alongside any of the above plans. The 2026 contribution limits are $7,500(under 50) or $8,600 (50+), and Roth contributions phase out at higher income levels.

A HSA (Health Savings Account) is worth mentioning because it's triple-tax-advantaged—contributions go in pre-tax, grow tax-free, and come out tax-free for qualified medical expenses. In retirement, you can use it for general expenses too. The 2026 limits are $4,400 for self-only coverage and $8,750 for family coverage, with an additional $1,000 catch-up for those 55 or older.

Which plan is best for you?

For many self-employed people in Utah, the best plan comes down to one question: do you want the easiest setup, or the biggest savings potential? A SEP IRA wins on simplicity. A SIMPLE IRA is a middle ground if you have employees. And a Solo 401(k) gives you the most room to save—especially if you and your spouse both work in the business.

👉 Next up: What is cash flow planning and why it matters

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.