Self-employed retirement plans. The freedom of running your own business is one of the great things about being self-employed. But that freedom can come with a lack of security, especially in terms of saving for retirement, as you don't have access to any employer plans. Only 13% of self-employed individuals have a workplace retirement plan, but many would be better off exploring their options. In addition to a more comfortable retirement, working with a financial advisor to set up your self-employed retirement plan offers significant tax advantages that can help propel you and your business forward.
Few financial advisory and retirement planning firms will understand the needs of the self-employed and small business owners than Correct Capital. Our founder's father was a small business owner himself (you can read more about our story here) and our firm has a strong history helping businesses with their retirement planning needs. We have a deep understanding that your business and retirement aspirations extend far beyond mere monetary figures, and we are committed to providing tailored solutions that reflect your goals. Read on to learn more about your self-employed retirement plan options, or call Correct Capital at 877-930-401k or contact us online to speak to a small business financial advisor today.
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Why Self-Employed Individuals Should Have a Retirement Plan
Retirement plans for self-employed individuals both prepare you for the future and offer tangible benefits today. From flexible contributions to significant tax savings, with the help of a financial advisor you can design your retirement plan to fit your unique financial situation.
Flexibility That Fits Your Income
If your income varies from year to year, a plan like a SEP IRA or Solo 401(k) gives you the option to adjust how much you save:
- Customizable Contributions: Save more during profitable years and dial back when income is lower, so your plan works with your cash flow.
- Roth Options: A Roth Solo 401(k) lets you pay taxes on contributions now, so you can withdraw tax-free later—a smart choice if you expect your tax rate to increase in the future.
Save Money on Taxes
Self-employed retirement plans offer powerful tax benefits:
- Tax-Deductible Contributions: Contributions to a SEP IRA, SIMPLE IRA, or Solo 401(k) reduce your taxable income, helping you keep more of what you earn.
- Tax-Deferred Growth: Investments grow without being taxed until you withdraw them, giving your money more time to compound.
- State-Specific Incentives: Depending on the state, you might qualify for additional deductions or credits as a self-employed individual. Local incentives can make these plans even more valuable.
- Retirement Savings Contributions Credit (Saver’s Credit): Eligible individuals can claim a tax credit of up to 50% of the first $2,000 contributed to a retirement plan, further reducing your tax bill.
Protect Your Savings With Smart Investments
Building a secure retirement isn’t just about how much you save—it’s also about how you invest:
- Diversified Portfolios: Spreading your investments across stocks, bonds, and other assets can help reduce risk while still growing your nest egg.
- Emergency Back-Up: Pair your retirement plan with a business emergency fund to avoid dipping into savings during tough times and risking penalties.
Plan for the Future of Your Business
Retirement planning can also help you prepare for what’s next with your business:
- Selling Your Business: If you’re planning to sell, retirement accounts like SEP IRAs and Solo 401(k)s remain your assets and are not part of the sale. These accounts can provide the steady income you’ll need later. Keep in mind that while selling a business typically results in a capital gain, contributions to retirement accounts are subject to annual limits (e.g., up to $7,000 for IRAs or $70,000 for Solo 401(k)s, including catch-up contributions, based on plan compensation).
- Minimizing Taxes: Using retirement contributions strategically can help reduce the taxes you’ll owe when you sell or pass on your business.
- Succession Planning: Whether you’re transferring ownership or winding down, your retirement savings give you financial security through the transition. You can also work with a financial advisor that specializes in succession planning and retirement plans to reduce the taxes you pay on the sale.
With the right retirement plan, you can take control of your financial future, reduce your tax burden, and build a secure foundation for both your retirement and your business goals.
Why Start a Self-Employed Retirement Plan Now?
Time is one of the most valuable assets when it comes to saving for retirement. Starting early not only allows you to build a larger nest egg but also minimizes the financial burden of catching up later in life. Here’s why it pays to take action now:
The Cost of Waiting
Delaying retirement savings can have a significant impact on the amount you’ll have when you retire. The main reason is compound interest—the process where your investments earn returns, and those returns, in turn, earn even more returns. The longer your money has to grow, the greater the impact of compounding.
Example: Alex and Taylor are both self-employed individuals. Both aim to save $500,000 for retirement by age 65:
- Alex starts saving $5,000 annually at age 30.
- Taylor waits until age 40 but saves $7,500 annually to catch up.
By age 65, assuming a 7% annual return:
- Alex contributes $180,000 and ends up with $691,184.39*.
- Taylor contributes $195,500 but only ends up with $474,367.78*.
How Early Contributions Grow
Even modest contributions made consistently over time can lead to significant growth. Here’s a simple scenario showing the impact of compounding:
- Starting at age 25: If you invest $200 per month in a retirement plan with an average annual return of 7%, you’ll have approximately $497,303.29* by age 65.
- Starting at age 35: Investing the same $200 per month would result in only $235,412.97* by age 65—a difference of over $260,000, just because of a 10-year delay.
The earlier you begin, the less you need to save each year to meet your retirement goals.
*The figures provided in this example are estimates based on calculations using NerdWallet’s Compound Interest Calculator, assuming a 7% annual return. The contributions were calculated by multiplying the annual deposit amount by the total number of years contributions were made. These examples are for illustrative purposes only and do not guarantee future performance. Actual results may vary depending on factors such as market conditions, fees, and individual circumstances. Always consult a financial advisor for personalized advice.
Take Control of Your Financial Future
For self-employed individuals, it can be easy to prioritize reinvesting in your business over saving for retirement. However, starting a plan now allows you to:
- Take advantage of tax-deferred growth or tax-free withdrawals in the future.
- Benefit from flexible contributions that adjust with your income.
- Create a safety net that provides long-term security, no matter how your business evolves.
The sooner you start, the less you’ll need to worry about playing catch-up later in life. Building your retirement savings today means taking control of your financial future and giving yourself the freedom to focus on your goals—both for your golden years and your business.
Types of Self-Employed Retirement Plans
There are several retirement savings options available for self-employed individuals, each with its own set of advantages and considerations. A financial advisor can help you understand the pros and cons of each option and choose the most suitable one for your circumstances. Generally, your self-employed retirement plan options include:
Traditional or Roth IRA
Plan Overview: IRAs, or Individual Retirement Accounts, are long-term savings plans that offer specific tax advantages. In a traditional IRA, contributions are typically tax-deductible, and investment earnings grow tax-deferred, but withdrawals in retirement are subject to income tax. In contrast, Roth IRA contributions are made with after-tax income, but qualified withdrawals in retirement, including earnings, are tax-free. In both accounts, withdrawals are penalty-free as long as you are at least 59½.
Eligibility: While many retirement plans, such as 401(k)s, are tied to employment, traditional and Roth IRAs are available to anyone with an earned income.
Contribution Limits: For 2025, annual contribution limits for IRAs are $7,000, or $8,000 if you're 50 or older.
Simplified Employee Pension Plan (SEP IRA)
Plan Overview: A Simplified Employee Pension (SEP) IRA is a retirement plan that allows self-employed individuals to contribute a percentage of their net earnings from self-employment. Contributions can only be made by an employer, so, as a self-employed individual, you (the employee) would not be able to contribute more than the 25% you (the employer) already contributed. If you have employees, you would have to contribute the same amount for them as you do for yourself. You may choose to contribute a flat-dollar amount or a percentage of wages to employee accounts. SEP IRAs may be a good self-employed retirement plan for businesses that experience cycles of high revenue and low revenue. SEP IRAs don't have the costly startup or administrative fees other retirement plans do.
SEPs work like traditional IRAs, where contributions are made with pre-tax money and withdrawals are taxed as income.
Eligibility: Any employer, including the self-employed, can establish a SEP.
Contribution Limits: Contribution limits for employees in a SEP IRA are the lesser of:
- 25% of compensation, or
- $70,000 for 2025
For the self-employed individual, the amount eligible to be contributed is based on a special calculation.
Solo 401(k)
Plan Overview: A Solo 401(k) plan, also known as an Individual 401(k) or one-participant 401(k) plan, is a self-employed retirement plan for businesses with no employees or whose only employee is a spouse. Solo 401(k)s function similarly to employer-sponsored 401(k) plans, and you can make contributions as both an employer or employee with pre-tax money. This offers more savings than SEPs or IRAs, however the additional opportunities for saving are often offset by more limited investment options. In a solo 401(k) plan, you can make either traditional or Roth deferrals, which each enjoy the same tax benefits as their IRA contribution counterparts.
Eligibility: Only business owners and their spouses can set up and contribute to a solo 401(k).
Contribution Limits: As a self-employed individual with a solo 401(k) plan, you can make two types of contributions:
- Elective deferrals (as an employee) of up to 100% of your earned income from self-employment, up to the annual contribution limit. In 2025, those limits are $23,500, or $31,000 if you are 50 or older, or $34,750 if you attain age 60-63 in 2025.
- Employer profit-sharing contributions (as an employer) which cannot exceed 25% of your net self-employment income, which is your net profit minus half of your self-employment tax and the elective deferrals you made.
The total contribution cannot exceed $70,000, or $77,500 if you're over age 50 (in 2025), $81,250 if you attain age 60-63 in 2025.
Individual Defined Benefit Plan
Plan Overview: A defined benefit plan is a retirement plan that provides a fixed, predetermined benefit to self-employed individuals upon retirement. As opposed to the defined contribution plans mentioned above, a defined benefit plan doesn't fluctuate based on investment returns, but allows self-employed individuals to know exactly how much they'll get in retirement. This plan is best suited for high-earning self-employed individuals who want to save a large amount for retirement and are willing to make substantial contributions. Contributions are tax deferred and withdrawals are taxed as income in retirement.
Eligibility: Any self-employed individual who runs an owner-only business or has less than five employees can open an individual defined benefit plan, but it's typically only recommended for those over 50 who earn at least $250,000 a year. Typically, good candidates for defined benefit plans are:
- Partners or owners who desire to contribute more than $70,000 (or $77,500 over age 50)
- Companies already contributing 3-4% who are willing to do more
- Companies who have demonstrated consistent profit patterns
- Partners or owners over age 40 who desire to "catch up" or accelerate the retirement savings
Contribution Limits: The contribution limit must be determined by an actuary based on your income, age, and retirement goals. Contribution limits are adjusted each year.
The Importance of a Financial Advisor for Your Self-Employed Retirement Plan
A financial advisor specialized in self-employed retirement plans can be an invaluable resource for self-employed individuals. They have the expertise to help you navigate the complexities of retirement planning and develop a tailored strategy that aligns with your goals. A financial advisor will assess your financial situation, understand your risk tolerance, and guide you in making informed decisions about saving and investing for retirement. Part of what we do for you includes:
- Help you choose a plan that best fits your needs and goals
- Customize the plan to your needs even further
- Adopt a written plan in accordance with IRS guidelines
- Arrange a trust plan for assets
- Help you understand the plan's terms
- Monitor and adjust your plan as needed
- Offer continued financial education and guidance as you continue on the road to retirement
- Increase your retirement income by maximizing your social security benefits
Self-Employed Retirement Plans: Correct Capital's Process
Business owners who don't have the time, interest, or knowledge to handle their self-employed retirement plan themselves can become overwhelmed when looking at their options. At Correct Capital, our financial advisors handle the lion's share of your retirement planning for you, and strive to make meeting your retirement goals as easy as possible for you. We can help you get set up with your self-employed retirement plan in four simple steps:
- Schedule a Call: It only takes 20 minutes for a member of our advisor team to understand if we're a good fit for you and your business. This brief introduction allows us to understand what you're looking for with no obligation or major time investment on your part.
- Gather Information: If we both decide to move forward, we'll ask for information, including how many employees you have (if any), your current financial situation, and your retirement goals. This allows us to put together a custom plan suited specifically for your needs.
- Review Your Plan: After we put together a plan based on the information you provide, we'll meet with you and go over your plan in detail to ensure you understand it and understand how it best correlates to your needs.
- Implementation and Monitoring: Once we've agreed on your plan, we'll put everything in place so you can start saving. Throughout our relationship, we'll meet with you and monitor your plan to ensure it stays suited to your needs.
Our financial advisors and retirement plan consultants are fiduciary advisors who are legally and ethically bound to do what's in your best interest.
Call Correct Capital for Your Self-Employed Retirement Plan
Your business isn't "just a business" to you, and your financial advisors need to offer more than simply sound financial advice. Correct Capital takes pride in getting to know our clients and their business to deliver customized self-employed retirement plans. We offer all our clients our I.O.U. promise: all of the advice you get from us will be independent, objective, and unbiased. To get started on your self-employment retirement plan, call Correct Capital today at 877-930-401k or contact us online.
