Solo 401(k) or SEP-IRA?

Usually Solo 401(k): higher effective contribution at the same income (employee deferral plus profit-sharing), a Roth option, and loan provisions. SEP-IRA wins on administrative simplicity and is the better choice once you have employees, since they must receive the same contribution percentage.

I have variable income — how do I plan?

Treat retirement as a fixed expense, not a leftover. On each payment received, sweep a set percentage (often 30-40%) into a separate account earmarked for quarterly taxes and retirement, and base the savings rate on a conservative rolling 12-month average, not your best month.

Can high earners shelter more than the Solo 401(k) allows?

Yes — a defined-benefit cash-balance plan stacked on a Solo 401(k) can shelter six figures annually for a stable, high-income one-person business, especially for older owners. It's powerful but has actuarial cost and funding commitments; it's a CPA/actuary decision.

Does cutting my reported income to save SECA tax help?

Rarely. Lower net earnings reduce the 15.3% SECA tax now but also lower the eventual Social Security benefit and your contribution room. Run the long-run trade-off before optimizing only the current-year tax.

By profession · Self-employed

Retirement planning for self-employed and 1099 workers

A profession-specific look at the retirement levers a self-employed actually has — pension rules, tax-advantaged accounts, and the Social Security wrinkles unique to your job.

Last reviewed May 4, 2026

Editorial review pending — see editorial process

The retirement landscape for a self-employed

Pension

None. You are simultaneously the employer and the employee, so the entire retirement structure — the plan, the contributions, the investment selection, and the discipline to fund it through variable income — is yours to build. The upside is control and far higher contribution ceilings than an employee gets; the downside is that nothing happens automatically and lumpy income makes consistent saving genuinely hard.

Tax-advantaged accounts

The Solo 401(k) is the most powerful option for a one-person business: an employee elective deferral ($23,500 (under 50) or $31,000 with the age-50 catch-up in 2026) PLUS an employer profit-sharing contribution of up to 25% of compensation, with a combined ceiling of $70,000 (2026; verify the final figure on the IRS COLA page). It also supports Roth contributions and, in some plans, after-tax 'mega-backdoor' Roth. The SEP-IRA is simpler but, because it is employer-only, usually allows a smaller contribution at the same income — and it requires proportional contributions for any employees. High, stable earners with no employees can stack a defined-benefit cash-balance plan on top of a Solo 401(k) to shelter six figures a year.

Social Security

Self-employed workers pay both halves of Social Security and Medicare — the 15.3% SECA tax on net self-employment earnings — but get an above-the-line deduction for the employer half, and all of it builds the eventual benefit. Under-reporting net earnings to cut SECA tax also lowers the future Social Security benefit; the calculus is rarely as favorable as it looks. Quarterly estimated payments are mandatory; the under-withholding penalty is a recurring, avoidable drag for new 1099 workers.

Common pitfalls

The dominant failure mode is treating retirement as the residual after lifestyle rather than a fixed expense — in a boom year there is always a reason to wait. Other traps: choosing a SEP-IRA for its simplicity when a Solo 401(k) would have allowed a much larger contribution at the same income; forgetting that adding even one employee changes SEP/SIMPLE economics dramatically; missing quarterly estimates; and carrying retirement savings entirely in pre-tax accounts, leaving no Roth or taxable bucket for tax-bracket management in retirement.

Worked example

A 42-year-old sole proprietor nets $95,000, has $145,000 saved. With a Solo 401(k): a full employee deferral plus ~20% of net self-employment income as profit-sharing can shelter well over $40,000 in a strong year, far beyond an IRA's limit. A durable system: on every invoice paid, sweep ~35% to a separate account that funds quarterly taxes and the year's retirement contribution, so retirement is paid before lifestyle. Model the variable income as a conservative rolling average rather than the best month, and keep some contributions Roth so the future plan has tax flexibility the calculator can show is worth real money.

Run the calculator with a typical self-employed starting point

Pre-filled: age 42, savings $145,000. Adjust to your actual numbers from there.

Run my numbers

Frequently asked

Solo 401(k) or SEP-IRA?
Usually Solo 401(k): higher effective contribution at the same income (employee deferral plus profit-sharing), a Roth option, and loan provisions. SEP-IRA wins on administrative simplicity and is the better choice once you have employees, since they must receive the same contribution percentage.
I have variable income — how do I plan?
Treat retirement as a fixed expense, not a leftover. On each payment received, sweep a set percentage (often 30-40%) into a separate account earmarked for quarterly taxes and retirement, and base the savings rate on a conservative rolling 12-month average, not your best month.
Can high earners shelter more than the Solo 401(k) allows?
Yes — a defined-benefit cash-balance plan stacked on a Solo 401(k) can shelter six figures annually for a stable, high-income one-person business, especially for older owners. It's powerful but has actuarial cost and funding commitments; it's a CPA/actuary decision.
Does cutting my reported income to save SECA tax help?
Rarely. Lower net earnings reduce the 15.3% SECA tax now but also lower the eventual Social Security benefit and your contribution room. Run the long-run trade-off before optimizing only the current-year tax.

Primary sources

Every profession-specific rule above traces to one of these primary sources. We re-verify each link annually; current as of the last-reviewed date below.