The Self-Employed Retirement Advantage Most People Miss
Self-employment means you're the CEO, the intern, and everything in between, including HR. The catch is that you don’t have a ready-made retirement plan from an employer. And that might actually be an advantage.
While your traditionally employed friends are stuck with whatever 401(k) their company picked, you have something they don't: complete control over potentially much higher savings limits.
Here's the plot twist: while your corporate friends complain about being "stuck" with their employer's 401(k), you have access to contribution limits that would make them jealous.
With a SEP IRA, you can contribute up to $70,000 annually in 2025. Let that sink in:
- 10x more than a regular IRA (which has a $7,000 limit if you’re under 50)
- 3x more than most employee 401(k) contributions (which have $25,000 limits if you’re under 50)
- That’s more than even high earners can contribute to their employer plans
This isn't just about saving more money. It's about potentially building wealth at a pace that traditional employees simply cannot match, even with an employer match.
The Pros of Retirement Savings for the Self-Employed
1. You’re in total control
You’re not tied to the investment options an employer chooses. You decide where to open your account, how much to contribute, and how to invest, giving you the flexibility to shape your retirement plan your way.
2. You can design a plan that fits your business income
When income fluctuates, so can your contributions. You have the option to contribute more in strong years and scale back when business slows down, without being locked into a fixed schedule.
3. Higher contribution opportunities
Self-employed retirement accounts like SEP IRAs, Solo 401(k)s, and SIMPLE IRAs often allow you to contribute more than the standard Traditional or Roth IRA limit. In high-earning years, this gives you the chance to set aside more for retirement than other employees can through workplace plans.
4. Business tax perks
Contributions to many self-employed retirement accounts can be deducted as a business expense, reducing your taxable income today.
Of course, this freedom comes with trade-offs. Here's the complete picture:
The Cons of Retirement Savings for the Self-Employed
1. There’s no built-in plan
Without an employer, there’s no HR department automatically setting up or managing your retirement benefits. You’re the one responsible for opening the account, making contributions, and keeping everything on track.
2. No employer match
Company-sponsored retirement plans often come with a match, meaning extra money added to your account by your employer. When you’re self-employed, that match disappears, and contributions solely come from you. If you have employees, some plans, like a SEP IRA, require you to contribute for them too, but if it’s just you, you only contribute for yourself.
3. Variable income makes consistency harder
Running your own business often means dealing with unpredictable cash flow. While flexibility is a perk, it can also be tempting to skip contributions in slower months, which can slow your long-term progress.
4. Employee obligations add complexity
If you hire staff, some retirement accounts for the self-employed require you to contribute for them at the same rate as you do for yourself. That means your retirement plan can also become part of your employee compensation strategy.
