Retirement Planning if You’re Self-Employed or a Small Business Owner

by Sophia Bera on September 27, 2017

Many people refer to retirement savings plans as “401(k)s” even if they’re not, because so many financial advice articles out there focus heavily on 401(k)s.

The reality is that there are a variety of ways to save for retirement, and the options you choose can depend on what kind of company you work for, or if you work for yourself. And since 401(k) plans can be complicated and expensive for employers, smaller companies generally don’t offer them.

If you’re self-employed or a small business owner, there are some other retirement savings accounts you may have access to instead.

(And if you want to learn more about creating your own benefits package when you’re self-employed, check out last week’s blog post!)


Traditional and Roth IRAs are Individual Retirement Accounts that you open and own, regardless of whom you work for. You can contribute up for $5,500 per year for 2018 and $6,000 per year beginning in 2019. There are some differences between the two account types when it comes to taxes and withdrawals.

Roth IRAs: You contribute post-tax dollars to this account. Your earnings grow tax-free and you can withdraw money tax-free after you turn 59½. There are income limits that might make you ineligible to contribute. If you anticipate being in a higher tax bracket in the future, Roth IRAs are ideal because you pay the taxes on your contributions now, when you’re in a lower tax bracket, instead of when you make the withdrawals in retirement.

Traditional IRAs: You contribute pre-tax dollars to this account. Your earnings grow tax-free, but you pay taxes on withdrawals in retirement. This is ideal if your income exceeds the Roth IRA limits or you think you’ll be in a lower tax bracket in retirement. You are required to make withdrawals from traditional IRAs once you turn 70½.

Pro tip: If you’re not covered by an employer sponsored retirement plan like a 401(k) then you are eligible to make tax deductible IRA contributions regardless of your income!

For more information on IRAs, check out these posts from the Gen Y Planning blog:


If you’re a freelancer, contractor, self-employed individual, or small business owner, you can open a SEP-IRA. These accounts work similarly to traditional IRAs in that you contribute pre-tax dollars and are taxed on withdrawals in retirement. Unlike traditional IRAs, you can contribute significantly more to a SEP-IRA — for 2018, that limit is the lesser of 25% of your income or $55,000. For 2019, that is changing to 25% of your income or $56,000.

If you work for yourself, you make the contributions yourself. If you’re a business owner with employees, you contribute to a SEP-IRA on their behalf and they don’t make contributions. You must make equal contributions for all employees of the business, including yourself. This is why they are mainly used for solo-business owners.

Solo 401(k)s

If you’re a business owner with no employees,  you can contribute to a solo 401(k). If your spouse earns income from your business, they can contribute, too.

Solo 401(k)s are similar to IRAs in that there are both traditional (pre-tax) and Roth (post-tax) options. A nice benefit of these accounts is that you can set aside a lot of money each year because you’re both the employee and employer of a sole proprietorship. For 2018, you can contribute up to $18,500, while your business can contribute 25% of your compensation (up to a $55,000 maximum for employee and employer contributions combined). For 2019, that is increasing to a $19,000 contribution from you, while your business can contribute 25% of your compensation up to a combined $56,000.


Employers with fewer than 100 employees can set up SIMPLE-IRAs. The employer must contribute to the account, whether or not the employee contributes as well, and can contribute either 2% of the employee’s compensation, or a dollar-for-dollar match of employee contributions up to 3% of their compensation. Employees can contribute up to $12,500 for 2018 and $13,000 for 2019.


Health Savings Accounts allow you to set aside money to spend on qualified medical expenses if you have a high deductible health care plan. You can contribute up to $3,450 for an individual or $6,900 for a family in 2018, and $3,500 for an individual or $7,000 for a family in 2019.

I’m a huge HSA fan because of the triple tax benefit: you contribute money pre-tax, the account grows tax-deferred until retirement, and if you withdraw money for medical expenses, those withdrawals are also tax-free. You can invest the money in your HSA as well!

Many people use their HSA as a form of retirement account because once you turn 65, you can withdraw money for any reason without paying penalties. You will have to pay taxes on money withdrawn for non-medical reasons.

For more information on HSAs, check out these posts from the Gen Y Planning blog: