How Do Self-Employed People Plan for Retirement? Solo 401(k), SEP, and Beyond

What Is the Best Retirement Account for Self-Employed?

The Solo 401(k) wins for most self-employed individuals:

- Employee contribution: $23,500 (+ $7,500 catch-up at 50+, + $11,250 super catch-up at 60-63) - Employer contribution: up to 25% of net SE income - Total: up to $70,000/year (2025) - Roth option: yes (employee contributions) - Loans: yes (up to $50,000)

SEP IRA is simpler but less flexible: - Employer-only contribution: 25% of net SE income, max $70,000 - No employee contribution or catch-up - No Roth option - No loans - Easiest to set up (most brokerages offer online in 15 minutes)

For income under $50,000: SEP and Solo 401(k) produce similar contribution limits. For income above $50,000: Solo 401(k) allows significantly more through the employee contribution.

How Do SE Taxes Affect Retirement Planning?

Self-employment tax is 15.3% on the first $176,100 (2025) of net SE income. This is in addition to income tax. The employer half (7.65%) is deductible.

Retirement contributions reduce taxable income but NOT self-employment tax. This means the effective tax savings from contributions is your income tax rate, not your combined rate.

The qualified business income (QBI) deduction (Section 199A) provides up to 20% deduction on qualified business income. This interacts with retirement contributions — higher contributions reduce QBI, potentially reducing the QBI deduction. The analysis engine models this interaction.

Want to Model Your Self-Employed Retirement?

The analysis at myaifinancialplan.com models Solo 401(k), SEP, and SIMPLE contributions alongside Social Security, SE tax, and QBI deduction — showing the optimal contribution strategy. Start free at myaifinancialplan.com.