Retirement Plans for Self-Employed Business Owners: SEP-IRA, SIMPLE IRA, and Solo 401(k)
Contributing to a retirement plan is one of the best tax strategies for self-employed business owners. Here's how SEP-IRAs, SIMPLE IRAs, and Solo 401(k)s compare — and which is right for you.
Last reviewed: August 12, 2026 — Contribution limits reflect IRS figures for the 2026 tax year. Limits are adjusted annually; confirm current-year figures at IRS.gov or with your tax advisor.
Retirement contributions reduce your taxable income dollar-for-dollar. For self-employed business owners, this is one of the most powerful tax strategies available — and one of the most underused. Here’s a breakdown of the three main options.
SEP-IRA (Simplified Employee Pension)
Contribution limit (2026): Up to 25% of net self-employment income, maximum $72,000.
Best for: Self-employed individuals and small business owners who want simplicity and high contribution limits.
Key features:
- Easy to set up (can be done by tax filing deadline, including extensions)
- No annual filing requirements
- Employer contributions only (you can’t make employee contributions)
- If you have employees, you must contribute the same percentage for them as you do for yourself
SIMPLE IRA
Contribution limit (2026): $17,000 employee contribution + employer match (up to 3% of compensation or 2% non-elective). Catch-up contribution for age 50+: an additional $3,500 (total $20,500).
Best for: Small businesses with employees who want a straightforward plan.
Key features:
- Both employer and employee contributions allowed
- Lower contribution limits than SEP-IRA or Solo 401(k)
- Must be established by October 1 of the year you want to use it
Solo 401(k)
Contribution limit (2026): Up to $72,000 ($79,500 if age 50+), combining:
- Employee deferral: up to $24,500 ($32,000 if age 50+)
- Employer contribution: up to 25% of compensation
Best for: Self-employed individuals with no employees (other than a spouse) who want maximum contribution flexibility.
Key features:
- Highest potential contribution of the three options
- Roth option available
- Loan provisions available
- Requires annual Form 5500 filing once plan assets exceed $250,000
Which Should You Choose?
| SEP-IRA | SIMPLE IRA | Solo 401(k) | |
|---|---|---|---|
| Max contribution (2026) | $72,000 | ~$20,500 | $72,000 |
| Employees allowed | Yes (with matching) | Yes | No (except spouse) |
| Roth option | No | No | Yes |
| Setup deadline | Tax deadline | Oct 1 | Dec 31 |
For most solo business owners, the Solo 401(k) offers the most flexibility and highest potential contributions. For simplicity, the SEP-IRA is hard to beat.
Retirement contributions are just one of many powerful tax strategies for self-employed owners. Another high-impact move: if you're earning $60,000+ net, an S-Corp election could save you $5,000–$15,000/year in self-employment tax on top of your retirement deductions. Use our S-Corp Salary Calculator to see the numbers. See our complete tax deductions guide for the full picture.
Related Resources
- Tax Deductions for Self-Employed Texans: The Complete List
- Why Tax Planning Should Happen Year-Round
- 10 Tax Deductions Every Small Business Owner Should Know
- S-Corp vs. LLC: Which Is Better for Your Taxes?
- Our Tax Preparation Services
- Contact Us
Want help choosing the right retirement plan and maximizing your tax savings? The Gap ProAdvisors provides tax planning for small business owners nationwide. Contact us.
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About the author
The Gap ProAdvisorsOwner & Lead Advisor — The Gap ProAdvisors
Angela is a Certified Bookkeeper, QuickBooks ProAdvisor, and IRS Registered Tax Return Preparer (PTIN) with over a decade of experience helping small businesses across Texas get their books right and keep more of what they earn. She founded The Gap ProAdvisors to make professional financial services accessible to every small business owner — no matter where they are.
