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

A freelancer's guide from Ledgerline.

Without an employer 401(k) match, freelancers have to build their own retirement savings system, and the two most common vehicles, a SEP IRA and a Solo 401(k), work differently enough that the choice matters.

SEP IRA. Simple to set up and maintain, contributions are roughly 20% of net self-employment income, and there's no employee-deferral option, it's purely an "employer" contribution. Good for freelancers who want simplicity and don't need to max out contributions at lower income levels.

Solo 401(k). More paperwork to set up, but allows both an employee deferral (a fixed dollar cap regardless of income, plus a catch-up if you're 50+) and an employer contribution, which often lets you contribute significantly more at the same income level, especially if your net income is more modest. Many Solo 401(k) plans also allow loans against the balance, which a SEP IRA does not.

Run the numbers for your own income with the SEP IRA calculator and Solo 401(k) calculator to see which gives you more room to contribute.

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