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Best Retirement Plans for Self-Employed Workers

As a freelancer, sole proprietor, or small business owner, planning for the future can be a daunting responsibility. This is especially true when it comes to saving for retirement amid inflation and economic uncertainty. If you feel unsure about how to independently fund your retirement, you are certainly not alone. Research shows that fewer than 30% of self-employed workers participate in retirement plans through their job. 

It doesn’t have to be that way, however, because most kinds of traditional retirement plans are still available to the self-employed, as are various other financial products designed for investing in retirement. Of course it’s no easy task to manage these all on your own, but learning about all your options is the best way to start. 

Individual Retirement Accounts (IRAs) 

IRAs are a common type of tax-deferred retirement account, and they are available to anyone. Regardless of your employment situation, you can open an IRA through a financial institution and contribute money on your own — up to $6,500 per year, or $7,500 at age 50 or older. There are two main types of IRA, each offering unique benefits for tax deductions. 

  • Traditional IRA: Contributions are tax deductible up-front, but are then taxed as income upon withdrawal. 
  • Roth IRA: Contributions are not tax deductible, but the earnings are not taxed when withdrawn after retirement. 

IRAs are popular because of their flexibility in investment options. The money in the account can be self-directed or professionally managed among a wide variety of assets including stocks, bonds, and mutual funds. The major caveat to both types of IRA is that funds cannot be withdrawn until the owner reaches age 59 ½, or an additional tax penalty will apply unless certain exceptions are met. 

*Consult a tax advisor


Short for Savings Incentive Match Plan for Employees, a SIMPLE IRA is a special type of IRA plan designed for small businesses that have employees but do not sponsor any other type of retirement accounts. As the name implies, SIMPLE IRAs are relatively easy and inexpensive to set up, and they offer the advantage of higher contribution limits than normal IRAs.

A SIMPLE IRA works by funding a Traditional IRA with both employee and employer contributions. This means that as a business owner, you can sponsor contributions for yourself and for other employees while deducting those contributions as a business expense.

As an employee, you can contribute up to $15,500 per year (plus a $3,500 catch-up contribution if you are over age 50). As the employer, you can choose to make either a non-elective contribution at 2% of employee compensation or a matching contribution up to 3% of employee compensation. The money in the fund then works like a Traditional IRA, with the same flexibility for management and stipulations for withdrawal at retirement age.

Simplified Employee Pension (SEP) 

A SEP plan, or SEP-IRA, is an alternative to the SIMPLE IRA that allows employers to make flexible contributions to an employee-owned IRA. SEP plans are relatively simple to set up and do not come with minimum requirements for annual contributions. This makes a SEP-IRA attractive for independent contractors or other businesses with irregular cash flow because there is no obligation to contribute regularly. The limits are relatively high, at 25% of employee compensation or $66,000 each year. 

SEP plans are offered through financial institutions and utilize a Traditional IRA structure, meaning they are subject to the same withdrawal and tax requirements. Once established, the SEP-IRA can be self-directed by the employee or managed with the help of the institution. This allows for a lot of freedom in funding and management of the account over time. 

Solo 401(k) 

Much like an employee-sponsored 401(k), a solo 401(k) can help maximize retirement savings for people who are self-employed or are partners in a business with no regular employees. This type of 401(k) plan is also called a one-participant 401(k), individual 401(k), or solo-k. 

Contributions to a solo 401(k) are tax deductible, and the account allows for both elective deferrals and nonelective contributions, with different limits applying to each type of contribution. This means that a business owner can choose how the money will be deducted from his or her paycheck and accounted for by the business. Superior flexibility makes the 401(k) a powerful tool for small business owners to fund their own retirement savings, but these plans come with higher set-up costs than the alternatives. 

*Consult a tax advisor


Annuities are a type of financial product that works much like an insurance plan, and they are typically issued by insurance companies. They are investment vehicles designed to provide a guaranteed, steady cash flow for people during retirement. Annuities are available to anyone regardless of employment, but work best as a supplement to retirement savings rather than as a retirement plan on their own. 

Annuities work in two main phases. The first is the accumulation phase, in which the annuity is funded by either a lump sum or regular payments. The second is the annuitization phase, which is the specified time in the future when the investment pays out. The time in between these two phases is known as the surrender period, when the money cannot be withdrawn without penalties. 

You can purchase an annuity at any age, but they are most useful if you are nearing or past retirement age and want to plan ahead for the possibility of outliving your retirement savings. If you are self-employed and thinking about retiring soon, you may consider purchasing an annuity now to ensure additional income in the future. 

Reverse Mortgage 

Reverse mortgages are a unique way for homeowners to supplement their savings in retirement. These are special loans that convert home equity into cash, as either a lump sum or payments over time. Reverse mortgages are generally best for older people with little or no remaining mortgage payments and substantial equity built up in their home. 

Self-employed or not, if you own your home you may be eligible for a reverse mortgage once you reach the age of 62. Upon applying for a reverse mortgage, the amount you receive will depend on factors like your age, the value of your home, and current interest rates. You can use the loan to pay off any remaining mortgage, and the rest can go toward other needs you have in retirement. 

A reverse mortgage need only be paid off upon the sale of the home or death of the borrower, meaning that your home is not used as collateral while you are alive. This makes reverse mortgages an attractive option for many people, but you should consider your unique situation to decide if a reverse mortgage is right for you

*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.

Choosing the Best Plan For Your Situation 

As a small business owner with a lot already on your plate, sorting through all these options for retirement savings may seem overwhelming, especially when you realize that more than one type of investment may be necessary for ensuring a comfortable retirement. That’s why consulting with a professional advisor is always best, but some general guidelines can help you decide what type of retirement plan to prioritize.  

  • A common recommendation for anyone, regardless of employment status, is to open an IRA (Traditional or Roth) and try to maximize your contributions at $6,500 each year. Keep in mind, however, that these funds should not be withdrawn until after you reach age 59 ½. 
  • As a self-employed business owner, if you want to make additional contributions through your business, consider opening a SEP-IRA. This can complement your existing IRA with flexible, tax-deferred contributions and a limit of up to $66,000 per year. 
  • As a business owner with a few employees, you may be able to optimize tax treatment for yourself and your employees by sponsoring a SIMPLE IRA with either non-elective or elective-deferral contributions. 
  • As a self-employed individual with no employees, you may instead choose to set up a solo 401(k), which offers the most flexibility in funding and withdrawal, but may be more complicated and expensive to maintain. 

Your business structure is of course not the only factor influencing your retirement plan. You must also set personal goals such as what age you want to retire and how much money you’d like to have each month. Additionally, you should factor in other possibilities such as purchasing annuities or taking a reverse mortgage loan at some point in the future. 

The bottom line is, the earlier you can start mapping out your options and envisioning your retirement, the more prepared you’ll be when the day finally comes. 

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

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