Self-employed individuals can choose from several tax-advantaged retirement plans based on the qualifications and needs of the business. Some options are SEP IRAs, SIMPLE IRAs, Solo 401(k)s, and payroll-deductible IRAs. Each plan has specific IRS rules about eligibility, contributions, and management. The appropriate plan type varies based on business structure and whether the business has employees. Individuals should review each plan’s requirements to determine how it aligns with their circumstances. 

• SEP IRA: A Simplified Employee Pension (SEP) IRA allows employer contributions based on a percentage of compensation. These contributions are subject to annual IRS limits. SEP IRAs don’t allow employee salary deferrals. SEP IRAs are structured to allow employer contributions with fewer administrative steps than some other plan types.
  
  
• SIMPLE IRA: A Savings Incentive Match Plan for Employees (SIMPLE) IRA permits employee salary deferrals and requires employer contributions. This plan is available to businesses with 100 or fewer employees, subject to IRS eligibility requirements. Its contribution structure is different from Traditional or Roth IRAs.
  
  
• Solo 401(k): Also known as an Individual 401(k), this plan is for self-employed individuals with no employees except a spouse. It allows both employee salary deferrals and employer contributions. Annual limits follow the 401(k) thresholds in IRS Notice 2025-67, which are higher than IRA limits.
  
  
• Traditional and Roth IRAs: Self-employed individuals can contribute to a Traditional or Roth IRA separately from their business retirement plan. This is subject to IRS income phase-out ranges and contribution limits for 2025 and 2026. For 2025, the annual IRA contribution limit is $7,000. The limit rose in 2026 to $7,500. There are catch-up contributions of $1,000 in 2025 and $1,100 in 2026 for those aged 50 or older.
  
  

Takeaway:

Self-employed individuals have access to several retirement plan options, each with its own contribution rules and administrative structure. Reviewing IRS guidelines for each plan type can help clarify how they function within a broader retirement strategy.

A Simplified Employee Pension (SEP) IRA is an employer-sponsored retirement plan. It lets business owners make contributions that follow standard IRA tax rules for themselves and eligible employees. Unlike salary-deferral plans such as SIMPLE IRAs or 401(k)s, SEP IRAs are funded solely by employer contributions. Employees do not make salary-deferral contributions.

• Contribution Structure: Employer contributions depend on a percentage of eligible compensation, with an annual IRS limit. For 2025, the maximum contribution is the lower of 25% of eligible compensation or $70,000, per IRS Notice 2025-67. For 2026, it is the lower of 25% of eligible compensation or $72,000. All eligible employees must receive the same percentage contribution each year.
  
  
• IRS and Custodial Requirements: A SEP IRA must be held by a qualified IRA custodian or administrator. The custodian maintains required records and issues IRS forms, like Forms 5498 and 1099-R. They also ensure assets are properly titled in the name of the IRA.
  
  
• Operational Considerations: Since SEP IRAs are funded only by employer contributions, SEP IRAs may be established by businesses with or without employees, subject to uniform contribution requirements. The plan must comply with IRS rules on eligibility, compensation, and contribution percentages. SEP IRA contributions are generally deductible to the employer under IRS rules and grow tax-deferred until distribution, following standard IRA rules.

Takeaway:

A SEP IRA allows employers to contribute a percentage of compensation toward retirement savings for themselves and eligible employees. This is subject to IRS limits and custodial requirements. Knowing the contribution rules, eligibility criteria, and custodial duties helps small business owners understand how a SEP IRA operates within IRS guidelines.

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a retirement plan for small businesses with 100 or fewer eligible employees. It follows the federal tax rules for IRAs but adds employee salary-deferral contributions and mandatory employer contributions. SIMPLE IRAs provide a retirement plan structure with administrative requirements defined by the IRS, which differ from those of a 401(k).

• Contribution Structure:

• 2025 SIMPLE IRA Limits

• Employee salary-deferral limit: $16,500

• Catch-up contribution (age 50+): $3,500

• • • Super Catch-Up (Ages 60-63): $5,250
    • Small-employer increased limit option (≤ 25 employees): Certain SIMPLE IRA plans for employers with 25 or fewer eligible employees may elect the higher deferral limit, provided the employer adopts the increased contribution requirement allowed under SECURE 2.0.

• Employer contributions: Employers can choose one of these IRS-approved methods each year:

• A matching contribution of up to 3% of employee compensation, or

• A 2% non-elective contribution for all eligible employees, regardless of salary deferral.

• 2026 SIMPLE IRA Limits

• According to IRS Notice 2025-67:

• • Employee salary-deferral limit: $17,000
  • Catch-up contribution (age 50+): $4,000
  • Super Catch-Up (Ages 60-63): $5,250
  • Small-employer increased limit option (≤ 25 employees): Certain SIMPLE IRA plans for employers with 25 or fewer eligible employees may elect the higher deferral limit, provided the employer adopts the increased contribution requirement allowed under SECURE 2.0.
  • Employer contribution rules: The same matching or 2% non-elective method applies for 2026. Employers may reduce the matching contribution to as low as 1% for no more than two years within any five-year period, per IRS rules.
    
    

• Custodial and Administrative Responsibilities: A SIMPLE IRA must be held by a qualified IRA custodian or administrator. This custodian keeps account records, ensures assets are correctly titled, and provides necessary IRS tax forms, such as Forms 5498 and 1099-R.
  
  

• Operational Considerations: SIMPLE IRAs have rules for eligibility, plan notices, contribution timing, and annual employer duties. Employers must apply the same contribution method for all eligible employees each year and provide required disclosures. Employees select their investments from options supported by the SIMPLE IRA custodian.
  
  

Takeaway:

A SIMPLE IRA provides a defined structure for employee salary deferrals and required employer contributions under IRS rules. Knowing the annual limits, eligibility rules, and custodial responsibilities helps business owners decide if a SIMPLE IRA meets their needs for retirement planning.

Yes, a Solo 401(k), or owner-only 401(k), usually allows higher total contributions than SEP IRAs, SIMPLE IRAs, or Traditional/Roth IRAs. Solo 401(k) plans allow both employee salary deferrals and employer contributions, which results in higher potential limits. For 2025, the employee salary-deferral limit is $23,500, plus an extra $7,500 catch-up for those aged 50 or older. SECURE 2.0 also adds a catch-up of $11,250 for ages 60–63 in 2025.

As the employer, you can contribute up to 25% of eligible compensation. For 2025, the total contribution limit is $70,000. With standard catch-up contributions, the maximum is $77,500. For those aged 60–63 with the enhanced catch-up, the limit is $81,250. For 2026, the total contribution limit is $72,000. With standard catch-up contributions, the maximum is $79,000. For those aged 60–63 with the enhanced catch-up, the limit is $83,250.

Takeaway:
A Solo 401(k) usually provides the highest contribution limits for self-employed individuals. Its fit depends on business structure, compensation, and comfort with administrative tasks.

A Solo 401(k) can have Traditional (pre-tax) or Roth (after-tax) options. The key difference is how contributions and withdrawals are taxed. Traditional Solo 401(k) contributions are made with pre-tax dollars. This means you defer income tax until you withdraw money. In contrast, Roth Solo 401(k) contributions use after-tax dollars. Qualified withdrawals may be tax-free if they meet IRS requirements for Roth distributions.

Employer contributions are always made on a pre-tax basis, even when the plan includes a Roth option. These follow the annual limits set in IRS Notice 2025-67, which includes salary-deferral limits and catch-up provisions for 2025 and 2026. Traditional Solo 401(k)s are subject to Required Minimum Distributions (RMDs). Roth Solo 401(k)s have their own RMD rules unless rolled into a Roth IRA, which has different requirements.

A qualified plan provider or trustee must oversee a Solo 401(k). They manage plan documents, recordkeeping, and IRS reporting. 

Takeaway:
Traditional Solo 401(k) contributions are tax-deferred, while Roth contributions use after-tax dollars and may qualify for tax-free withdrawals. Understanding how each option is taxed, along with the applicable IRS rules, can help individuals evaluate which structure aligns with their long-term retirement planning needs.