Do you work for yourself? Understanding your self-employed retirement plan options is essential for building long-term financial security and maximizing tax benefits. In this article, we share 3 self-employed retirement plan options for you to consider.
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Solo 401(k)
What is a Solo 401(k)?
A solo 401(k) plan is an employer-sponsored retirement savings plan for owner-only businesses. You can also include a spouse who works for the business. Solo 401(k) plans follow the same requirements and limitations as other 401(k) plans. Any business entity can set up a solo 401(k), whether a sole proprietorship, S corporation, C corporation, or limited liability company (LLC).
Solo 401(k)s give the small-business owner increased retirement savings potential because both the business and you as the individual can contribute to the fund.
What are the individual contribution limits of a Solo 401(k)?
For the tax year 2025, as an individual, you can contribute up to $23,500 pre-tax dollars of your income from the business to the account (if you operate as a W2 employee within your company). The IRS allows a $7,500 catch-up contribution limit for individuals aged 50 – 59 or older than 64. If you’re between 60 – 63 years old, that catch-up contribution limit increases to $11,250 per year.
If you are a self-employed individual who does not pay yourself as a W2 employee, calculating your individual contribution limits will require a bit more math.
The IRS advises: “When figuring the contribution, compensation is your ‘earned income,’ which is defined as net earnings from self-employment after deducting both one-half of your self-employment tax and contributions for yourself.”
Your wealth manager can help you calculate the correct contribution limit based on your business entity type.
Are you a business owner who is also employed by another company with a 401(k) plan? Keep in mind that the 401(k) plan limits apply to you as a person—not per plan. The IRS states, “A business owner who is also employed by a second company and participating in its 401(k) plan should bear in mind that his limits on elective deferrals are by person, not by plan.”
What are the business contribution limits of a Solo 401(k)?
The business can also make contributions to the retirement plan: up to 25% of your compensation (after Social Security and Medicare taxes), with a limit of $350,000 for tax year 2025.
Are there tax benefits of a Solo 401(k)?
The business—a.k.a. you—can also see savings come tax time, as employer contributions can be deducted as a business expense. We recommend working with a tax professional to ensure you maximize your savings potential.
Cash Balance Plans
What is a cash balance plan?
Cash balance plans — also known as cash balance pension plans — are a type of pension plan with a defined benefit to eligible employees at retirement. Funded entirely by the business, the account is credited each year with a “pay credit” from you and an “interest credit” (at either a fixed or variable rate).
What are the contribution limits of a cash balance plan?
Unlike a solo 401(k) or other defined contribution plans, annual contribution limits for a cash balance plan are dependent on a number of factors, like age, salary, and desired retirement benefit.
The goal of a cash balance plan is to reach a certain retirement benefit over the entirety of your working years. For example, if you are a 35-year-old business owner with an annual salary of $100,000, your annual contribution to a cash balance plan is going to be significantly less than a 58-year-old business owner with an annual salary of $600,000.
However, there is a maximum lifetime limit of cash balance plans. For 2025, that limit is $3.5 million.
Can you have both a cash balance plan and a solo 401(k)?
You can! Having both a solo 401(k) and a cash balance plan is a great way for you to maximize your retirement savings as someone who is self-employed. Working with a wealth manager can help you set up, administer, and calculate your annual contributions to both.
Are there tax benefits of a cash balance plan?
Yes! Cash balance plans are qualified plans, which means you can deduct every dollar you put into the plan.
SEP IRAs
SEP IRAs are another type of individual retirement plan with much higher contribution limits (up to 25% of an employee’s pay) than traditional or Roth IRAs. And unlike some other conventional retirement plans, SEP IRAs do not have high start-up and operating costs. These plans are open to any business of any size and any entity type.
Unlike other IRAs, only the employer (not the employee) contributes to the fund. The business can also change contribution amounts year-to-year, allowing you to adjust based on each year’s cashflow. Contributions are tax-deferred, with withdrawals taxed as ordinary income.
What are the contribution limits to SEP IRAs?
For tax year 2025, the IRS limits contributions to 25% of an employee’s pay, with a maximum of $70,000.
What are the tax benefits of SEP IRAs?
Generally, you can deduct SEP IRA contributions as a business expense.
Choose the best self-employed retirement plan option with Landmark Financial
When you’re uncertain of retirement plan options as a self-employed individual, you could be missing out on setting yourself up for success in retirement. Work with a Landmark Financial Planner to select the best plan(s) for you.