Best retirement plans for self-employed workers in 2025: secure your future now

Planning for retirement can be challenging, especially for self-employed workers who don’t have access to employer-sponsored retirement plans. Without a traditional pension or 401(k) provided by an employer, it’s essential to take proactive steps to ensure a secure financial future.

In this guide, we’ll explore the best retirement plans for self-employed workers, comparing options like IRAs, SEP IRAs, and Solo 401(k)s, and helping you choose the best one for your financial situation.

Best retirement plans for self-employed workers in 2025

There are several retirement options available for self-employed workers. Here are the most effective ones:

1. SEP IRA (Simplified Employee Pension IRA)

• Ideal for self-employed individuals and small business owners with no employees.
• Contributions are tax-deductible and grow tax-deferred.
• In 2025, the contribution limit is up to 25% of net earnings, with a cap of $66,000.
• Simple to set up and manage, making it a popular choice for solo entrepreneurs.

2. Solo 401(k)

• Designed for self-employed workers and business owners with no employees.
• Allows for both employer and employee contributions, maximizing savings potential.
• Higher contribution limits than SEP IRAs: up to $23,000 in employee contributions (for 2025), plus employer contributions up to a total of $66,000.
• Offers Roth and Traditional options, providing tax flexibility.

3. SIMPLE IRA (Savings Incentive Match Plan for Employees)

• Best for small business owners with employees.
• Employers must contribute either a 3% match or a 2% fixed contribution for each employee.
• Contribution limit for employees is $16,000 in 2025, with catch-up contributions for those over 50.

4. Traditional IRA and Roth IRA

• Available to all self-employed individuals, regardless of income.
• Traditional IRA contributions are tax-deductible, while Roth IRA contributions grow tax-free.
• Annual contribution limit is $7,000 (or $8,000 for those over 50).

5. Defined Benefit Plan

• Works similarly to a pension plan, allowing high-income self-employed workers to contribute significantly more.
• Ideal for those who want large tax-deferred contributions.
• Requires more administrative work and higher setup costs.

Traditional IRA vs. Roth IRA – Which one is better for you?

Individual Retirement Accounts (IRAs) are a popular choice for self-employed workers due to their ease of setup and tax advantages. When choosing between a Traditional IRA and a Roth IRA, understanding how each works can help determine which is best suited to your financial situation.

A Traditional IRA allows you to make contributions that are tax-deductible, which can lower your taxable income in the year you contribute. However, taxes on these funds are deferred until retirement, meaning you will pay taxes when you withdraw the money. This option is ideal for individuals who anticipate being in a lower tax bracket in retirement, as they can take advantage of tax savings while working and pay less tax when withdrawing the funds later.

On the other hand, a Roth IRA requires contributions to be made with after-tax income, meaning you do not receive an immediate tax deduction. However, the key advantage is that withdrawals in retirement are tax-free, allowing you to enjoy your savings without worrying about taxes later. A Roth IRA is particularly beneficial for individuals who expect to be in a higher tax bracket in the future, as paying taxes upfront can result in greater long-term savings.

If you are uncertain about which IRA to choose, a Roth IRA is generally recommended for younger workers who have many years for their investments to grow tax-free. In contrast, a Traditional IRA may be more suitable for those who are closer to retirement, as they can benefit from tax deductions now while expecting a lower tax rate in the future. Ultimately, the best choice depends on your current income, tax bracket expectations, and retirement goals.

How to Choose the Right Retirement Plan for Your Business

Selecting the right self-employed retirement plan depends on several factors, including income level, contribution capacity, and tax preferences.

• If you want high contribution limits → Consider a Solo 401(k) or Defined Benefit Plan.
• If you prefer flexibility → A Traditional or Roth IRA may be a good choice.
• If you own a small business with employees → A SIMPLE IRA is a better option.
• If you want minimal paperwork → A SEP IRA is an easy-to-manage plan.

Each plan has unique tax benefits and restrictions, so it’s important to compare them carefully before deciding.

Pros and Cons of Self-Employed Retirement Plans

Maximizing Your Retirement Savings as a Self-Employed Worker

Here are some ways to increase your retirement savings and get the most out of your chosen plan:

• Take advantage of tax deductions – Contributions to SEP IRAs, Traditional IRAs, and Solo 401(k)s reduce your taxable income.
• Consider a Roth option – Roth IRAs and Roth 401(k)s allow for tax-free withdrawals in retirement.
• Use catch-up contributions – If you’re over 50, increase contributions to your IRA or 401(k) to save more.
• Diversify your investments – Spread your retirement savings across different asset classes for better long-term growth.

Common Mistakes to Avoid When Planning for Retirement

• Not saving early enough – The earlier you start, the more time your money has to grow.
• Ignoring tax implications – Some plans offer immediate tax deductions, while others provide tax-free withdrawals.
• Underestimating future expenses – Healthcare and inflation can impact retirement savings, so plan accordingly.
• Failing to adjust contributions – As your income increases, increase your retirement contributions to keep pace.

How much should you save for retirement?

Saving enough for retirement depends on your income, expenses, and retirement goals. A common rule of thumb is to save 15-20% of your annual income.

Example of retirement savings strategy

If you earn $60,000 per year, you should aim to save:

• $9,000 per year (15%) → around $750 per month.
• $12,000 per year (20%) → around $1,000 per month.

Planning ahead is crucial. If you want to retire with $500,000 or less, check out this guide: How to retire with $500,000 or less

Tax benefits and deductions for self-employed retirement plans

One of the biggest advantages of self-employed retirement plans is the tax benefits. Contributing to a SEP IRA, Solo 401(k), or Traditional IRA allows you to reduce your taxable income.

How tax deductions work:

• SEP IRA & Traditional IRA → Contributions reduce taxable income now.
• Roth IRA → No immediate tax deduction, but withdrawals are tax-free.
• Solo 401(k) → Contributions lower taxable income, and Roth options allow tax-free withdrawals later.

You can also deduct contributions as a business expense, reducing your overall tax bill.

For more details on tax deductions, visit the IRS official website and Investopedia.

Choosing the right plan – What works best for you?

Choosing the right retirement plan as a self-employed worker depends on several factors, including your income level, tax situation, and long-term financial goals. With multiple options available, it’s important to understand the key differences to determine which plan best suits your needs.

For those with lower income or just starting their savings, a Traditional IRA or Roth IRA might be the best choice. A Traditional IRA allows you to deduct contributions from your taxable income now, while a Roth IRA provides tax-free withdrawals in retirement. If you expect your income to increase over time, a Roth IRA could be the better option.

Small business owners or freelancers with higher earnings may benefit more from a SEP IRA or Solo 401(k). A SEP IRA is ideal for those who want higher contribution limits and flexibility in saving, as contributions can vary from year to year. Meanwhile, a Solo 401(k) is a powerful option for high-income earners who want to maximize their retirement savings with both employer and employee contributions.

Ultimately, the best retirement plan depends on your financial situation and retirement goals. If you need flexibility, a SEP IRA is a great choice. If you’re looking for higher contribution limits and more tax advantages, a Solo 401(k) could be the best fit. No matter which plan you choose, starting early and contributing consistently is the key to building a strong financial future.

Self-employed workers must take charge of their retirement planning since they don’t have employer-sponsored benefits. Choosing between a Traditional IRA, Roth IRA, SEP IRA, or Solo 401(k) depends on your financial goals, income, and tax situation.

If you’re just starting, an IRA is a great option. If you’re earning more, a Solo 401(k) or SEP IRA may be better.

Don’t wait to start saving. The earlier you begin, the more financial security you’ll have in retirement. Start today and build a stronger financial future! 🚀