Nobody at the IRS is going to tap you on the shoulder and tell you which retirement account to max out. When you're self-employed, that decision falls entirely on you — and the stakes are higher than most people realize.
A W-2 employee gets a 401k dropped in their lap, sometimes with a match. You get four different account types with overlapping contribution limits, phase-out rules, and deadlines that don't sync with each other. Here's how to cut through it.
The Four Accounts Worth Your Attention
Solo 401(k) — The Workhorse
If you have no employees (a spouse working in the business is fine), the Solo 401k is almost always the best vehicle. Here's why:
You wear two hats: employee and employer. As the employee, you can contribute up to $23,500 in 2025 (plus $7,500 catch-up if you're 50+). As the employer, you can contribute an additional 25% of net self-employment income. Combined, the cap is $70,000 ($77,500 with catch-up).
The math advantage over a SEP-IRA is significant at lower income levels. A contractor earning $80,000 net can stuff far more into a Solo 401k than a SEP — because the employee deferral portion isn't limited to a percentage of income.
You can also add a Roth option to a Solo 401k, which a SEP-IRA doesn't offer. Contributions go in after-tax; growth and withdrawals are tax-free.
One catch: you need to open it by December 31 of the tax year. SEP-IRAs can be opened until the filing deadline (including extensions).
SEP-IRA — Simple but Capped by Income
The SEP-IRA lets you contribute up to 25% of net self-employment income, capped at $70,000. It's clean, easy to open at any brokerage, and has no Roth option.
It wins over a Solo 401k in exactly one scenario: you're earning well above $200k and want maximum simplicity. At that income level, both accounts cap out around the same place.
If you have employees, a SEP requires you to contribute the same percentage for them as you contribute for yourself. That usually makes it unattractive for anyone with a team.
SIMPLE IRA — Skip It (Usually)
The SIMPLE IRA is designed for small businesses with employees. Employee contributions cap at $16,500 in 2025, and employer matching is mandatory (either 2% of all eligible employee compensation or 3% match on deferrals).
For a solo operator, there's almost no reason to choose a SIMPLE over a Solo 401k. The contribution limits are lower and the rules are messier.
Roth IRA — The Backstop
Income limits apply: in 2025, Roth IRA eligibility phases out between $150,000–$165,000 (single) and $236,000–$246,000 (married). If you're above those thresholds, the backdoor Roth conversion is your workaround — but it gets complicated if you have existing pre-tax IRA balances.
At contribution limits of $7,000 ($8,000 if 50+), the Roth IRA is a supplement, not a primary vehicle. But for someone in a low-income year or just starting out, it's often the first account to max.
The Optimal Stack
| Priority | Account | Why | |----------|---------|-----| | 1 | HSA (if on HDHP) | Triple tax advantage — pre-tax in, tax-free growth, tax-free withdrawal for medical | | 2 | Solo 401k (traditional or Roth) | Highest combined limits, flexible | | 3 | Roth IRA | Tax-free growth, no RMDs | | 4 | SEP-IRA or taxable brokerage | If Solo 401k maxed and more to invest |
The HSA-first strategy is worth dwelling on. If you're on a High Deductible Health Plan, an HSA gives you a deduction going in, tax-free growth, and tax-free withdrawals for qualified medical expenses. After 65, you can withdraw for anything (taxed as ordinary income, just like a traditional IRA). No other account offers that triple advantage.
Deadlines That Will Bite You
- Solo 401k: Must be established by December 31 of the tax year, even if you fund it later
- SEP-IRA: Can be opened and funded up to the tax filing deadline including extensions (October 15 for most sole proprietors)
- SIMPLE IRA: Must be established by October 1 of the year you want to contribute
- Roth IRA: Fund up to April 15 of the following year (no extensions)
The Common Mistake
Waiting. Self-employed income is lumpy — a great Q3 followed by a slow Q4 can leave you scrambling in January. The discipline of paying yourself first, even 15-20% of every client payment directly into your retirement account, beats any strategy that depends on having leftover cash in April.
If you're comparing W-2 benefits vs. a 1099 contract and want to see whether the retirement contribution difference changes the math, run it through the Freelance vs. Employee calculator. It accounts for the employer contribution offset on both sides.
For the Roth vs. Traditional tradeoff specifically — especially if you're not sure which bracket you'll be in at retirement — the Roth vs. Traditional calculator lets you model both scenarios side by side.
The right retirement strategy for a contractor isn't complex. It's just different from what W-2 employees are used to — and most of the advantage goes to whoever figures that out earliest.