The Best Retirement Account for Freelancers: SEP-IRA or Solo 401(k)?

When you were on payroll, retirement savings were automatic: HR enrolled you, the company matched a percentage, and money left before you could spend it. As a freelancer, none of that happens unless you make it happen yourself. The good news is that the tax-advantaged accounts available to self-employed people are some of the most generous in the US tax code.

Your two main options

Both accounts let you save with pre-tax dollars, reducing your taxable income in the year you contribute — a meaningful benefit when you're already paying self-employment tax on top of income tax. The two accounts diverge in contribution limits, flexibility, and administrative overhead.

SEP-IRA: simple, high ceiling, no overhead

A Simplified Employee Pension IRA is the easier of the two to open. Contributions are made as the employer, and the limit is 25% of your net self-employment income, up to a federally set annual cap (around $70,000 for tax year 2025, indexed annually by the IRS). There are no required annual filings, no plan documents, and most major brokerages let you open one in about fifteen minutes.

• Contribution limit: 25% of net self-employment income, up to ~$70,000 (2025 cap)
• Employee-style contributions: not available — only employer contributions
• Roth option: not available; contributions are pre-tax only
• Annual filings: none required
• Best for: consistent higher earners who want maximum simplicity

Solo 401(k): higher ceiling at moderate incomes, more flexibility

The Solo 401(k) — also called an Individual 401(k) — lets you contribute in two buckets: as the employee and as the employer. The employee bucket has a flat dollar limit ($23,500 for 2025, not tied to your income). The employer bucket adds up to 25% of net self-employment income on top of that, with a combined cap of roughly $70,000.

That two-bucket structure makes the Solo 401(k) significantly more powerful at moderate income levels. At $80,000 net self-employment income, a SEP-IRA allows roughly $14,000 in contributions. A Solo 401(k) allows $23,500 in the employee bucket alone — before adding the employer contribution.

• Contribution limit: up to ~$70,000 combined (2025), employee + employer buckets
• Employee contributions: up to $23,500 in 2025 regardless of income
• Roth option: available at most custodians if elected when the plan is set up
• Annual filings: Form 5500-EZ required once assets exceed $250,000
• Best for: lower-to-mid earners who want to maximize contributions, or anyone who wants a Roth option

A worked example at $80,000 net income

After deducting half of self-employment tax, net earnings for contribution purposes at $80,000 gross self-employment income come to roughly $56,700. Here is how the two accounts compare:

• SEP-IRA maximum: 25% x $56,700 = $14,175
• Solo 401(k) employee portion: $23,500
• Solo 401(k) employer portion: 25% x $56,700 = $14,175
• Solo 401(k) combined maximum: $37,675

At $80,000 net income, the Solo 401(k) allows over $23,000 more in tax-advantaged contributions per year. The gap narrows as income rises — at $200,000 and above, the SEP-IRA's 25% gets close to the combined cap, and the simplicity of the SEP-IRA starts to outweigh the administrative requirements of the Solo 401(k).

How to pick the right one

• Net income under $150,000 and want to maximize tax-sheltered contributions: Solo 401(k)
• Net income over $200,000 and value simplicity above all: SEP-IRA reaches near the same ceiling with no filings
• Want a Roth option or the ability to borrow against your plan: Solo 401(k)
• Income swings significantly year to year: SEP-IRA, since there is no minimum required in low-earning years
• You have employees other than yourself or a spouse: you cannot use a Solo 401(k); SEP-IRA is your path

One deadline that actually matters

A Solo 401(k) must be opened by December 31 of the tax year in which you want to make contributions. A SEP-IRA can be opened and funded all the way up to your tax filing deadline — typically October 15 if you file an extension. If you are in the fourth quarter and have not decided, the SEP-IRA keeps your options open. The Solo 401(k) requires the decision before December 31.

Both account types can be opened at Fidelity, Vanguard, Schwab, or most major brokerages at no cost. What you invest the contributions in is a separate question — a broad-market index fund is a reasonable starting point while you sort out the rest. The most important step is opening the account. Everything else can be refined after that.