How to Save for Retirement as a Freelancer: SEP-IRA vs Solo 401(k)
A clear comparison of the best retirement accounts for self-employed freelancers — SEP-IRA and Solo 401(k) — with contribution limits, tax benefits, and how to choose.
Retirement planning is one of the most neglected aspects of freelance finances — and one of the most lucrative, thanks to tax advantages unavailable to most employees. Every dollar you contribute to a retirement account reduces your taxable income dollar-for-dollar.
Here's how to choose the right account and maximize your contributions.
Why Freelancers Must Be Intentional About Retirement
As an employee, your HR department enrolled you in a 401(k). You may have gotten an employer match. Contributions came out of every paycheck automatically. Now as a freelancer, all of that is your responsibility.
No one will automatically save for your retirement. The upside: the accounts available to you have much higher limits than standard employee 401(k)s, and the tax benefits are substantial.
Use the retirement contribution calculator to find your maximum contribution for each account type.
The Main Options: SEP-IRA vs Solo 401(k)
SEP-IRA (Simplified Employee Pension IRA)
How it works: the IRS effective contribution rate for sole proprietors is approximately 20% of net SE income (after deducting half of SE tax per IRS Publication 560), capped at $72,000 for 2026.
Key advantages:
- Simple to set up — most brokerages offer it with no fees
- High contribution limit relative to income
- Deadline is your tax filing deadline including extensions (typically October 15 for individuals with extensions)
Key disadvantages:
- Cannot make Roth (after-tax) contributions
- The ~20% effective rate means lower maximum than Solo 401(k) at virtually all income levels
- No loan provisions
Best for: freelancers who want the simplest possible setup. If maximising contributions is the priority, Solo 401(k) wins at almost every income level.
Solo 401(k) (Individual 401k)
How it works: you contribute in two roles — as employee and employer.
- Employee contribution: up to $24,500 (2026); plus catch-up $8,000 for ages 50-59 and 64+; enhanced catch-up $11,250 for ages 60-63 (SECURE 2.0)
- Employer contribution: up to ~20% of net SE income (same IRS formula as SEP-IRA)
- Total: up to $72,000 for 2026 (or $80,000 with standard catch-up; $83,250 for ages 60-63)
Key advantages:
- Significantly higher contributions at all income levels below ~$254k (the employee deferral alone is $24,500)
- Roth contribution option available (after-tax dollars, tax-free in retirement)
- Loan provisions available (borrow up to 50% of balance, $50,000 max)
Key disadvantages:
- More complex to set up and administer
- Requires annual Form 5500-EZ filing when balance exceeds $250,000
- Must be set up by December 31 of the contribution year (unlike SEP-IRA)
Best for: almost every freelancer who wants to maximise retirement contributions. The $24,500 employee deferral alone typically exceeds the SEP-IRA maximum at incomes below ~$130k.
Contribution Comparison at Different Income Levels (2026)
| Net Income | SEP-IRA Max | Solo 401(k) Max |
|---|---|---|
| $30,000 | ~$5,574 | ~$30,074* |
| $60,000 | ~$11,148 | ~$35,648 |
| $100,000 | ~$18,587 | ~$43,087 |
| $150,000 | ~$27,881 | ~$52,381 |
| ~$254,000+ | $72,000 | $72,000 |
*At $30,000 income, Solo 401(k) allows a $24,500 employee contribution plus ~$5,574 employer contribution, while SEP-IRA is limited to ~$5,574. Solo 401(k) wins by ~5× at this income level.
Solo 401(k) wins decisively below ~$254k. The accounts converge at higher income when the employer contribution alone reaches the annual cap.
The Tax Math
At a 22% federal bracket with SE tax already accounted for, contributing $15,000 to a SEP-IRA saves approximately $3,300 in federal income tax. If your state has income tax at 5%, add another $750 in state savings. Total: $4,050 saved per $15,000 contributed.
That's not a return on investment — it's a direct reduction in the amount you owe. The money still grows tax-deferred, with no tax on gains until you withdraw in retirement.
How to Open an Account
SEP-IRA: available at Vanguard, Fidelity, Charles Schwab, and most major brokerages. No setup fee. Open online in minutes. Contribute by your tax filing deadline.
Solo 401(k): available at Fidelity, Vanguard, and some other brokerages. Must be established by December 31 of the tax year you want to contribute. Takes a few days to set up.
Invest contributions in low-cost index funds — a total market index fund (like Vanguard VTSMX or Fidelity FZROX) is a sound default.
How Much Should You Contribute?
Start with whatever you can afford. Even $200/month into a SEP-IRA grows meaningfully over 20-30 years with compound growth.
A reasonable target: aim to contribute 10-15% of gross income. Increase contributions when you have high-income months. The savings rate calculator can help you build this into your monthly financial planning.