Retirement Options for the Self-Employed, Explained Simply

Waiting five years to open a retirement plan costs about $135,000, and only $50,000 of that is the money you did not put in.

That is $10,000 a year for twenty years at 6%, against the same $10,000 a year started five years later. The missing five years are worth $50,000 in contributions and $85,000 in growth those contributions never got to do.

A one person business can put up to $72,000 into a retirement plan in 2026. Most people running one put in nothing, because the choice looks like paperwork and the paperwork wins.

There are four realistic options. They differ on how much you can put in, how much administration they carry, and when you have to decide.

Here they are side by side, with the figures taken from the IRS rather than from a summary of the IRS.

The four options, with 2026 limits

Plan	What you can put in for 2026	Administration	Best suited to
SEP IRA	Up to 25% of compensation, capped at $72,000	Lightest of the four. No annual filing at small sizes	Profitable years you want to shelter, decided late
Solo 401(k)	$24,500 as the employee, plus employer contributions, to a $72,000 total. Catch-up $8,000 at 50+, $11,250 at 60 to 63	Heavier. Must be opened before year end	Getting the most in at a moderate profit
SIMPLE IRA	$17,000 employee, catch-up $4,000 at 50+, $5,250 at 60 to 63	Light, but lower ceiling	A business with a couple of employees
Traditional or Roth IRA	$7,500, catch-up $1,100 at 50+	None to speak of	Starting, or topping up one of the above

All figures are the IRS 2026 cost of living adjusted limits. The $72,000 is the overall defined contribution limit, and it is the same ceiling for the SEP and the Solo 401(k).

The difference that actually decides it

At lower profits, a Solo 401(k) lets you put away more than a SEP, because the first $24,500 goes in as the employee regardless of profit. A SEP is capped at 25% of compensation, so at $60,000 of compensation a SEP tops out around $15,000 while a Solo 401(k) could take $24,500 plus an employer share.

At high profits they converge, because both stop at $72,000.

So the honest rule of thumb: if your profit is modest and you want to save as much as possible, the Solo 401(k) usually wins. If your profit is large and you want the least paperwork, the SEP usually wins.

The deadline nobody mentions

A Solo 401(k) generally has to exist before the end of the tax year. A SEP can often be opened and funded later, up to your filing deadline including extensions.

That single difference decides it for a lot of people in October, which is why this is an October post. If you think you might want a Solo 401(k) for this year, the decision is now, not in April.

What this does to your nest egg

We worked out what a comfortable retirement costs in every state earlier this month. The gap between what most self-employed women have and that number is not usually caused by bad investing. It is caused by years with nothing going in.

A plan you actually fund, at any of these limits, closes it faster than any clever choice between them.

See what it does to your own number, free

The number at the top of this post is the one nobody shows you, because it needs your own figures to mean anything. The free Projections screen does it with yours.

It is part of La Soglia, the free membership of the Money Mastery System. Move the monthly saving and the retirement age and watch the whole picture move, in three outcomes rather than one confident line. No bank connection, nothing to cancel, and the Money Mastery Collective comes with it.

The five year gap above is not an argument for choosing the right plan. It is an argument for opening any of them this month.

Questions we hear

Can I have more than one? Often yes, but the $72,000 overall limit applies across plans you control, and an IRA has its own separate $7,500. Ask your accountant before running two.

What if my income is unpredictable? That is an argument for the SEP, because you are not committing to anything in advance and you decide after you know the year.

Can I still contribute if I have a job as well as the business? Usually yes, though your workplace plan uses up part of the $24,500 employee limit. The employer side of a Solo 401(k) is separate.

Is any of this a deduction? Contributions generally reduce your taxable income, which is most of the appeal. The rules differ between traditional and Roth, so confirm which you are opening.

References

All limits from the IRS, COLA increases for dollar limitations on benefits and contributions, read for 2026.

Worth knowing: several widely read summaries currently state the SIMPLE IRA limit as $18,100. The IRS table says $17,000. The higher figure is a different provision for certain small employers, and it is being quoted as though it were the standard limit. We used the IRS page.

Bring it to the Collective

This is the decision most worth talking through out loud, because the right answer depends on numbers you may not want to post publicly. The Money Mastery Collective has a discussion feed open to free members, and the Money Hour is where Donna works through questions like this on screen.

A note on what this is

This article is educational. The Money Mastery System is an educational tool, not financial software, and nothing here is legal, tax, investment or financial advice. The contribution limits are the IRS published figures for 2026, and which plan suits you depends on circumstances this article cannot see. For guidance on your own circumstances, please speak with a qualified professional who knows them.