Retirement planning is one of the most overlooked parts of freelancing. No employer match, no pension, no automatic enrollment. But freelancers actually have access to retirement accounts with higher contribution limits than most W-2 employees — if you know which one to use.
The two most popular options: the SEP IRA and the Solo 401(k). They're both tax-deferred, both easy to open at a major brokerage, and both dramatically reduce your taxable income. But they have very different contribution formulas.
SEP IRA: The Simple Option
A Simplified Employee Pension IRA (SEP IRA) lets you contribute up to 25% of your net self-employment income (capped at $69,000 in 2026). For a sole proprietor, it's actually closer to 20% because of the SE tax deduction math.
- Start with your net Schedule C income
- Subtract half your SE tax
- Multiply by 0.25 (25%) — but this already accounts for the contribution itself, so the effective rate is ~20%
Example at $100,000 net SE income: - Net SE income after SE deduction: ~$92,350 - SEP IRA max: ~$18,587
Pros: - Dead simple — one line on your tax return - Can be opened as late as your tax return due date (including extensions — typically October 15) - Works well for part-time freelancers - No annual filing requirement with the IRS
Cons: - Lower contribution limit than Solo 401(k) at most income levels - No Roth option (traditional only) - No loan provision - If you have employees, you must contribute for them at the same percentage
Solo 401(k): The Power Move for High Earners
The Solo 401(k) — also called Individual 401(k) or Self-Employed 401(k) — is two accounts in one: an employee deferral plus an employer contribution.
Employee contribution (2026): Up to $23,000 ($30,500 if age 50+) Employer contribution: Up to 25% of W-2 compensation, or ~20% of net SE income for sole proprietors Total limit: $69,000 ($76,500 with catch-up)
Example at $100,000 net SE income: - Employee deferral: $23,000 - Employer contribution: ~$18,587 - Total: ~$41,587 — vs $18,587 with a SEP IRA
At lower income levels, the employee deferral component makes the Solo 401(k) dramatically more powerful.
Pros: - Much higher contributions at income under $150,000 - Can choose traditional (pre-tax) OR Roth contributions - Loan provision — borrow up to 50% of account balance - No contribution required in lean income years
Cons: - Must be established by December 31 of the tax year (unlike SEP IRA) - Requires Form 5500-EZ when balance exceeds $250,000 - Slightly more administrative complexity - Not available if you have non-owner employees
Head-to-Head: Which Saves More by Income Level
| Net SE Income | Solo 401(k) Max | SEP IRA Max | Advantage | |--------------|-----------------|-------------|-----------| | $30,000 | $24,861 | $5,570 | Solo 401(k) | | $60,000 | $33,538 | $11,170 | Solo 401(k) | | $100,000 | $41,587 | $18,587 | Solo 401(k) | | $150,000 | $51,587 | $27,930 | Solo 401(k) | | $200,000 | $61,587 | $37,272 | Solo 401(k) | | $290,000+ | $69,000 | $69,000 | Tie |
At virtually every income level, the Solo 401(k) lets you contribute more. The gap narrows above ~$200,000 and disappears at ~$290,000.
When the SEP IRA Still Makes Sense
Despite the Solo 401(k) having better contribution limits, the SEP IRA is still the right choice for some freelancers:
- You missed the December 31 deadline. The Solo 401(k) must be established before year-end. SEP IRA can be opened and funded up to October 15.
2. Variable or unpredictable income. If you're not sure what you'll earn, the SEP IRA's simple 20% formula is easier to estimate.
3. You want simplicity above all else. One brokerage, one account type, one line on your tax return.
4. You're a part-time freelancer with low SE income. If you're earning $30,000–$50,000 from freelancing, the SEP IRA cap isn't limiting you enough to matter.
Roth vs Traditional: The 401(k) Bonus
One significant Solo 401(k) advantage: you can designate your employee contribution as Roth, contributing after-tax dollars that grow tax-free and come out tax-free in retirement.
This is valuable if you expect to be in a higher tax bracket in retirement than you are now — common for younger or early-career freelancers. The SEP IRA has no Roth option.
How to Open a Solo 401(k)
- Choose a brokerage: Fidelity (no fees), Vanguard, Charles Schwab, or E*TRADE all offer free Solo 401(k) plans with good investment options
- Get an EIN (Employer Identification Number) — free at IRS.gov if you don't already have one
- Establish the plan by December 31 of the year you want to use it
- Make contributions: Employee deferrals by December 31; employer contributions by tax return due date
Use our Solo 401(k) Calculator to see your exact maximum contribution for 2026.
The Bottom Line
For most freelancers, the Solo 401(k) is the better choice. The ability to make a large employee deferral ($23,000) regardless of income — combined with an employer contribution — means you can shelter significantly more of your income from taxes.
The only reason to choose a SEP IRA is if you missed the establishment deadline, prefer simplicity, or have employees (which disqualifies the Solo 401(k) anyway).
Set up a Solo 401(k) now if you don't have one — the December 31 establishment deadline means waiting costs you an entire year of contributions.