When you’re a business owner, no one is setting up a retirement plan for you. There is no HR team setting up a 401(k) account. No automatic contributions. No employer match waiting in the wings. It is all on you. Sh*t.
Don’t worry, there is good news. It means you are in control. You get to design a custom retirement plan that aligns with your income, values, and the life you want to have.
We will walk through the most common retirement options for the self-employed and break down how they work in simple terms, pros and cons, and how to choose what makes sense for your business and your goals. There are more options than you may think, and the plan you start with may change as your business, your income, or your team grows.
Let’s start with the retirement plan you have probably heard of before.
1: Traditional & Roth IRAs
Best for: anyone, as a starting point or *supplemental* retirement savings vehicle
How it works: Contribute up to $7,000 in 2025 (or $8,000 if age 50+), regardless of other plans you may have.
Pros:
- Simple and accessible
- Easy paperwork and set up
- Traditional contributions are tax deductible*
- Roth contributions provide tax-free retirement income
Cons:
- Low contribution limits compared to other options
- Income limits apply for Roth IRAs**
Pro Tip: Once you are ready for a bigger retirement plan you can utilize your IRA to build a tax-diverse retirement portfolio alongside a SEP or Solo 401(k) and create a robust retirement strategy.
*If you (or your spouse) have an employer-sponsored retirement plan, the tax-deductible portion of your IRA contribution may be limited.
**Be aware that there are income limits for Roth IRA contributions. Consult your Financial Advisor or CPA before making any decisions if you want to use Roth contributions as part of your retirement strategy.
2: SEP IRAs (Simplified Employee Pension)
Best for: Solopreneurs or small businesses with few employees
How it works: You contribute as the employer, up to 25% of net self-employment earnings, with a cap of $70k in 2025.
Pros:
- Easy to set up and maintain
- Higher contribution limits than other IRAs
- Flexible (you can skip contributions in low-income years)
Cons:
- No Roth option (this means all contributions are pretax)
- Contributions are employer-only
- If you have employees, you must contribute the same % to each eligible* employee as you do for yourself
Pro Tip: Also a great option for freelancers or consultants with fluctuating income and no team.
*For example, if you have two employees and want to make 15% contributions, you must also contribute 15% (of their salary) to employees that meet certain eligibility criteria.
3: Solo 401(k)s
Best for: Solopreneurs or business owners with only a spouse as an employee
How it works: You wear two hats in terms of contributions, employee and employer:
- As the employee: defer up to $23,500 (or more if you are 50+) in 2025
- As the employer: contribute up to 25% of compensation
- Max contribution between both: $70k (or more if 50+) in 2025
Pros:
- Roth option available
- Higher contribution potential than SEP for many
- Option to take a loan from the plan (subject to IRS limits)
Cons:
- More paperwork than a SEP IRA
- More complicated to understand and implement
- Once the plan hits $250k you must file Form 5500 annually
Pro Tip: Ideal for mid-to-high earners who want to maximize savings and have access Roth contributions. Highly recommended to work with a Financial Advisor or CPA for set up and implementation.
4: SIMPLE IRA (Savings Incentive Match Plan for Employees)
Best for: Small businesses with fewer than 100 employees who want an easy retirement plan with employee participation
How it works: Employees can contribute up to $16,500 in 2025 (or more if 50+). As the employer, you must either:
- Match employee contributions (dollar-for-dollar) up to 3% of employee compensation, or
- Make a 2% nonelective contribution for all eligible employees (this means you contribute 2% even if there are no employee contributions)
Pros:
- Easier and cheaper than a 401(k) plan
- Employees can contribute, and employer contributions are required
- No annual filing requirements for the employer
Cons:
- Lower contribution limits than a Solo 401(k) or SEP IRA
- Less flexible contribution structure (employer contributions are required every year)
- No Roth option
Pro Tip: Great for employee retention of small teams if you want to support employee retirement without the complexity of a full 401(k) plan and provide more than nothing.
5: Defined Benefit Plan (AKA Your Own Pension)
Best for: High earners ($250k+ per year) who want to contribute large amounts and/or catch up on retirement quickly.
How it works: You set a future retirement income goal, and an actuary calculates your required annual contribution (often well into six figures).
Pros:
- Huuuuge contribution potential
- Tax-deferred growth
- Contributions can be deducted from taxable income
Cons:
- Requires a long-term commitment*
- More complex and expensive** to administer
- Works best when income is stable and predictable
- The IRS has strict required minimum contribution rules
Pro Tip: A powerful tool for business owners in their 50s who want to turbocharge retirement savings before exiting the business. DO NOT set this up without the assistance of a Financial Advisor and CPA.
*The IRS expects a plan to be maintained for the purpose of accumulating retirement assets, so using a Defined Benefit Plan as a method of seeking short-term tax relief runs the risk of the IRS disqualifying the retirement plan.
**The benefits of the plan (particularly tax savings and ability to save large amounts for retirement) need to outweigh the costs or a Defined Benefit Plan doesn’t make sense.
Choosing the Right Plan for You
Head spinning? Here’s a quick cheat sheet:
| You | Consider This |
|---|---|
| Solopreneur, or just starting out | SEP IRA or Solo 401(k) |
| Want Roth option + max flexibility | Solo 401(k) |
| Small business w/ employees | SIMPLE IRA |
| High income, ready to go big | Solo 401(k) and/or Defined Benefit Plan |
| Supplement other retirement savings | Traditional or Roth IRA |
Final Thoughts: Build the Future You Want
Retirement planning doesn’t have to be overwhelming. Your business might be thriving, but your future self needs more than a super profitable year or two, she needs the security of a solid and strategic retirement plan.
You don’t have to figure it out alone. If you’re ready to explore your options, I’m here to help you cut through the sh*t and set up a retirement plan that supports both your business and the life you’re building.
Let’s talk about your future. Schedule a call today and take the first step toward making your retirement plan as intentional as your business.
Disclosures:
Divergent Financial Advisory Services, LLC dba as DiFi Advisory, is a Registered Investment Advisor (“RIA”) registered with the state of Oregon. Registration as an investment adviser does not imply a certain level of skill or training, and the content of this communication has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority.
The information contained in this material is intended to provide general information about Divergent Financial Advisory Services, LLC dba as DiFi Advisory and its services. It is not intended to offer investment advice. Investment advice will only be given after a client engages our services by executing the appropriate investment services agreement. Information regarding investment products and services are provided solely to read about our investment philosophy and our strategies. You should not rely on any information provided on our web site in making investment decisions.
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