Best Retirement Plan Options for the Self-Employed

Being self-employed comes with many advantages, one of which is your ability to choose from a number of retirement plan options. The key is to match the right plan option with your retirement planning objectives and yearly contribution goals. And if you have employees, other than a spouse, to be certain you understand the contribution requirements and limits for both you and your employees.

In addition to the traditional IRA/Roth IRA qualified retirement plan options that you most likely are already familiar with, self-employed individuals have a number of other options, with the most common being SEP IRA, SIMPLE IRA, solo 401(k), and defined benefit plan. The main differences between each being the amount of allowable contributions you can make each year, how contributions limits are calculated and the rules regarding both employee and employer contributions.

If you are just starting your business and/or you don’t have a great deal of money to put towards retirement, a traditional IRA or Roth IRA might be a good option. Contribution limits for 2017 are $5,500 (additional $1,000 catch-up contributions for those 50 or older). There are no special filing requirements and you can use it whether or not you have employees.

Solo 401(k)

If you want to save a larger amount than the IRA limits previously mentioned and don’t have any employees other than your spouse, a solo 401(k) plan may be a good option to consider. A solo 401(k) also lets you borrow from your plan if your business has a lean year while also allowing for both pre- and post-tax contributions.

A solo 401(k) plan can be quite flexible in addition to having high contribution limits. In 2017 up to $54,000 ($6,000 catch-up for age 50 and over) in contributions can be made to either a traditional solo 401(k)(current tax deduction) or a Roth solo 401(k), allowing for tax diversification. Its loan provisions can be a lifesaver if you find yourself in a pinch cashflow wise. A solo 401(k) allows you to borrow up to $50,000 or 50% of the value of your plan's assets, whichever is lower. Only the solo (401)k plan offers this feature (not all plan providers allow for loans, be sure to ask before implementation).


The simplified employee pension, or SEP IRA, is most often used by self-employed people or small business owners with relatively few employees. The contribution limits are the same as for the solo 401(k), $54,000 in 2017. However, unlike the solo 401(k), there are no catch-up contributions allowed if your over 50, nor is there a Roth version, and loans are not allowed.

SEP IRAs require the employer to make contributions for every employee, and the contributions must be equal for all eligible employees, not in dollar amount but as a percentage of pay. A SEP then is a great option if you want to save for your retirement while also helping your employees save for theirs. (For related reading, see: Solo 401(k) vs. SEP: Which Is Best for Biz Owners.)


The savings incentive match plan for employees, or SIMPLE IRA, is a retirement option that is designed for businesses with up to 100 employees. The SIMPLE is easy to set up, and the accounts are owned by each employee. Each employee can contribute through salary deferral up to $12,500 for 2017 ($3,000 catch-up if 50 and older). The employer must make contributions for all eligible employees—either a fixed 2% of eligible compensation or match dollar-for-dollar each employee contribution to a maximum of 3% of compensation. Most employers chose the 2% option. This mandatory contribution provision can be expensive to the business owner if they have large numbers of employees who participate.

Defined Benefit Plan

Finally, self-employed business owners can contribute to a defined-benefit plan. These plans are akin to pension plans and are most attractive to high-income earners with no employees. Defined-benefit plans are typically used by individuals over age 50 who want to contribute substantial amounts of money towards their retirement annually, typically $75,000 and above. A benefit formula is created that targets a level of retirement income (maximum retirement income benefit for 2017 is $215,000) that can be supported by your desired annual contribution level (subject to IRS limits). Defined-benefit plans have very specific contribution requirements and can be expensive to administer, but if you are a high-income earner these plans can allow you to supercharge your retirement savings.

As you can see, matching a retirement plan option to your specific situation, retirement savings goals and tax savings objectives is critical in maximizing your plan's benefits. To help choose the right plan for your needs consult a qualified fee-based financial planner specializing in business owner retirement plans.

(For more from this author, see: Exit Strategies for Business Owners.)


Securities and Investment Advisory Services are offered through Signator Investors, Inc., Member FINRA/SIPC, a Registered Investment Advisor. AspenCross Wealth Management is independent of Signator Investors, Inc. 1400 Computer Drive, Westborough, MA  01581.