Retirement for Freelancers: SEP IRA vs Solo 401(k)

Short answer: for most freelancers the choice comes down to two plans. A SEP IRA is the simplest — you contribute up to ~20% of net self-employment income, no employee paperwork. A Solo 401(k) lets you put away more at the same income because you contribute both as "employee" and "employer," and it adds a Roth option. Both let you shelter far more than a regular IRA, and every dollar in a traditional version cuts this year's taxable income. Here's how to pick.

Before you can decide how much to stash, you need to know what you actually keep after self-employment tax. The free Freelance Rate Calculator works that out → from your rate and costs, so you can see how much income is really available to invest.

Why freelancers need their own plan

There's no employer 401(k) match waiting for you, no HR enrolling you automatically. If you don't open an account yourself, nothing gets saved — and you lose both decades of compounding and a sizeable tax deduction every year you skip. The good news: self-employed plans have much higher limits than the IRA an employee uses, precisely because you're playing both roles.

The four options at a glance

Figures are for the 2026 tax year and round numbers — confirm the exact limits when you open the account, as the IRS adjusts them annually.

Deciding between a big pre-tax deduction now and tax-free growth later? Compare a SEP IRA vs a Roth IRA for freelancers → — many self-employed people end up using both.

Not sure how much you can spare to invest? Use the free Freelance Rate Calculator → to turn your rate and expenses into your real take-home after tax. Once you know your monthly surplus, a retirement contribution is just one more line in your freelance budget.

SEP IRA — the no-hassle choice

A SEP IRA is the easiest self-employed plan to run. You open it at any major broker, and each year you contribute up to roughly 20% of your net self-employment income (technically 25% of "net earnings," which works out near 20% of profit after the SE-tax adjustment), capped at $70,000 for 2026. There's no annual filing, no employee deferral to track. The trade-off: at lower and middle incomes you can usually save more in a Solo 401(k) for the same earnings, and a SEP has no Roth version.

Solo 401(k) — more room, plus Roth

A Solo 401(k) (also called an Individual 401(k)) lets you contribute in two capacities. As the "employee" you can defer up to $23,500 in 2026 regardless of how that compares to your income. Then as the "employer" you add up to ~20% of net SE income on top, with the combined total capped at $70,000. Because the first $23,500 isn't tied to a percentage, a freelancer earning, say, $60,000 can shelter far more in a Solo 401(k) than in a SEP. Many providers also offer a Roth sub-account for the employee portion, letting you lock in tax-free growth. The cost: slightly more setup, and once your balance tops $250,000 you file a one-page Form 5500-EZ each year.

How much tax does it actually save?

You net $80,000 from freelancing and put $20,000 into a traditional SEP or Solo 401(k). That $20,000 comes off your taxable income, so at a combined ~22% federal marginal rate you cut this year's income-tax bill by roughly $4,400 — and the money is still yours, now invested. (Retirement contributions reduce income tax, not the self-employment tax itself.)

That deduction is exactly why high-earning freelancers treat a SEP or Solo 401(k) as a tax tool as much as a retirement one. Pair it with your other write-offs in the freelance tax deductions checklist, and remember to factor the lower taxable income into your quarterly estimated taxes.

Which should you pick?

• Just starting / small surplus: a Roth IRA is fine — simple and flexible.
• Want maximum savings at a mid income: Solo 401(k) wins because of the flat $23,500 employee slice.
• High income, hate paperwork: SEP IRA — near-identical ceiling, almost no admin.
• Want tax-free growth: Solo 401(k) with a Roth sub-account.

Fund it from a rate that can actually afford it

A retirement plan only works if your rate leaves something to invest after tax and living costs. The $9 Freelance Rate & Tax Calculator spreadsheet shows what you keep after self-employment tax at any rate, so you can build a contribution into your number instead of hoping there's cash left over. Want the invoice template too? Get both in the $14 Starter Pack →

Frequently asked questions

SEP IRA or Solo 401(k) — which is better for a freelancer?

At low and middle incomes a Solo 401(k) usually lets you save more, because the first $23,500 you contribute as the "employee" isn't tied to a percentage of profit. At high incomes the two reach a similar ceiling, so the SEP IRA's near-zero paperwork can win. The Solo 401(k) also offers a Roth option that the SEP does not.

How much can a freelancer contribute to retirement in 2026?

A traditional or Roth IRA allows $7,000 ($8,000 if you are 50 or older). A SEP IRA allows roughly 20% of net self-employment income up to $70,000. A Solo 401(k) allows a $23,500 employee deferral plus about 20% as the employer, with the combined total capped at $70,000, and an extra $7,500 catch-up if you are 50 or older. Confirm exact figures when you open the account.

Does a retirement contribution reduce my freelance taxes?

A traditional (pre-tax) SEP IRA or Solo 401(k) contribution reduces your taxable income, cutting your income tax for the year at your marginal rate. It does not reduce the self-employment tax, which is calculated on your net profit before the retirement deduction. A Roth contribution gives no upfront deduction but grows tax-free.

Can I open a Solo 401(k) if I have no employees?

Yes — the Solo 401(k) is designed for a self-employed person with no employees other than a spouse. If you later hire staff you generally must move to a different plan, but as a solo freelancer or single-owner business it is one of the most generous options available.

When do I have to set up and fund the account?

A SEP IRA can usually be opened and funded right up to your tax filing deadline (including extensions) for the prior year, which is convenient. A Solo 401(k) generally must be established by year-end to make employee deferrals for that year, though employer contributions can follow later. Check current deadlines with your provider.