Being your own boss is great, but it comes with a little twist when it comes to retirement planning. And if you're one of the 16.35 million self-employed workers in the U.S., you've probably noticed that figuring out retirement isn't as straightforward as it is for everyone else.

The numbers tell a pretty tough story — self-employed households typically have $4,700 less in their retirement accounts compared to those working for employers. But there are still some great options out there for independent workers like you.

In this guide we're going to look at different ways you can save for retirement when you're self-employed.

What Are Retirement Options for Self-Employed Individuals? 

SEP IRA — A Good Choice for Many Self-Employed People

If you've heard about SEP IRAs, there's a good reason — they're a bit like a traditional IRA but with some great extras that work really well for self-employed people. You can put in more money, and the rules aren't too complicated.

The way it works is quite straightforward: you're basically wearing two hats — you're both the employer and employee. And as the employer, you get to contribute quite a bit of money to your retirement account. For 2024, you can put in up to $69,000 (or 25% of your net income, whichever is less).

The tax benefits might be good too. Everything you put in reduces your taxable income for the year, and your money grows tax-deferred until you take it out in retirement. And if you're running your own business, these contributions count as business expenses — so they're fully deductible on your taxes.

Here's what makes SEP IRAs different from some other retirement accounts:

• You don't need much paperwork to get started

• You can skip contributions in lean years

• You don't have to put money in at specific times — you can wait until tax filing time

• There's no annual filing requirement

But there are a few things to keep in mind. You can't make regular employee contributions like you would with a 401(k), and there aren't any catch-up contributions if you're over 50. Also, when you take the money out in retirement, you'll pay regular income tax on it.

Solo 401(k) — Double Up Your Contributions

If you're working for yourself with no employees (except maybe your spouse), a Solo 401(k) might be a good fit. It's pretty much like a regular 401(k), but with some extra perks that work great for self-employed people.

Here's what makes it different: you get to contribute as both the employer and employee. As an employee, you can put in up to $23,000 for 2024. And if you're 50 or older, you can add another $7,500 on top of that. Then, wearing your employer hat, you can contribute up to 25% of what you earn.

Everything you put in helps reduce your taxable income right now, which can be really helpful in years when business is doing well. Your money grows tax-deferred, and you don't pay taxes until you take it out in retirement.

A few things that make Solo 401(k)s work really well:

• You can save a lot more money compared to some other plans

• You've got flexibility in how much you contribute each year

• There's less paperwork since you don't have employees

• You can borrow from your account if you need to (though that's probably not your first choice)

And since you're both the employer and employee, you don't have to deal with all those complex testing requirements that bigger companies have to do. It's just you (and maybe your spouse) making the decisions about your retirement savings.

SIMPLE IRA — A Good Option for Small Business Owners

Here's another retirement plan that might work for you if you're running a small business. The SIMPLE IRA is pretty much what it says on the tin — it's simpler than some other options, which can be really helpful when you're busy running your business.

For 2024, you can put in up to $16,000 from your salary. And if you're 50 or older, you get to add an extra $3,500. But there's a little twist — as the employer, you'll need to chip in too. You can either match what you put in (up to 3% of your pay) or contribute a flat 2% of your compensation.

This plan works really well if:

• You want something that's easy to set up and maintain

• You have a few employees (up to 100)

• You don't want to deal with a lot of paperwork

• You're looking to save on administrative costs

Your contributions go in before taxes, which helps lower your taxable income right now. Then your money grows tax-deferred until you take it out in retirement. And since there's no complex testing or annual IRS filing required, you can focus more on running your business and less on paperwork.

If you've got employees, they can join in too, and your matching contributions can help them build their own retirement savings. That's a great way to show your team you care about their future, and it might help you keep good people around longer.

Traditional and Roth IRAs — A Good Foundation for Everyone

Even if you're using other retirement plans, you can still put money into regular IRAs. For 2024, you can contribute up to $7,000 to either a Traditional or Roth IRA. And if you're 50 or older, you get an extra $1,000 on top of that.

These two types of IRAs work a bit differently:

• With a Traditional IRA, you might get a tax break now (if you meet the income rules), and you'll pay taxes when you take the money out during retirement

• With a Roth IRA, you pay taxes on the money now, but then you get tax-free growth and withdrawals during retirement — which can be handy if you think you'll be in a higher tax bracket later

You can actually use these alongside your other retirement accounts. That way, you've got different pots of money with different tax treatments, which can be pretty helpful when you're planning for retirement.

Defined Benefit Plans and Keogh Plans

Qualified plans (also called H.R. 10 plans or Keogh plans when covering self-employed individuals), including 401(k) plans. Retirement plans for self-employed people were formerly referred to as “Keogh plans” after the law that first allowed unincorporated businesses to sponsor retirement plans. Since the law no longer distinguishes between corporate and other plan sponsors, the term is seldom used. 

Defined benefit plans and Keogh plans serve as robust retirement options for self-employed individuals, particularly those with higher incomes.

The Tax Part — It's Actually Good

Now let's talk about something that can really help your wallet — the tax benefits of these retirement plans. 

Here's what's great about most retirement plans (like SEP IRAs, SIMPLE IRAs, and traditional 401(k)s): the money you put in can help reduce your taxes right now. When you contribute $15,000 to a SEP IRA, for example, your taxable income goes down by that same amount. You'll see this on Form 1040 Schedule 1, and it can make a real difference in your tax bill.

But there's more to it. Once your money is in the account, you don't pay taxes on any of the interest or gains it makes each year. That means your money can grow faster since taxes aren't eating into it along the way. You'll pay taxes later when you take the money out during retirement, just like you would with a regular paycheck.

And if you're thinking about Roth accounts, they work a little differently. You pay taxes on the money now, but then you get something pretty special — when you take it out during retirement, you don't pay any taxes on it. That includes all the gains it earned over the years.

Just keep in mind that if you need to take money out before you're 59½, you might have to pay extra in penalties — about 10% on top of any taxes you owe. There are some exceptions to this rule, but it's good to plan on keeping the money in there until retirement.

Making It All Work Together

When you're self-employed, retirement planning can feel like a lot to figure out. You're definitely not alone in this — about 83% of small business owners know they should be saving more for retirement. And with 8 in 10 workers worried about changes to the retirement system, it's pretty clear that getting good guidance matters more than ever.

Your income might go up and down, when you're self-employed, which can make it tough to plan consistent retirement contributions. And if you're thinking about selling your business someday as part of your retirement plan, that's something that needs careful planning too.

It's pretty common for self-employed people to work with advisors who know these retirement plans inside and out and help freelancers with financial planning. They can look at your whole financial picture — your business income, your tax situation, and your retirement goals — and help you create a strategy that makes sense for you.

Technology has made connecting with financial advisors easier than ever. Modern platforms like FINNY can match you with advisors who work with self-employed professionals like you and understand how to handle the ups and downs of self-employment income while planning for retirement.

Get matched with a financial advisor.