Retirement Options for the Self-Employed

Trent Bradshaw CFP®, AIF® & Brandon Rogers CFP®, AIF® |

This past year highlighted small businesses more than any other. The impact from a struggling economy has not gone unnoticed and the support from local shoppers has made the difference between open and closed for many small business owners. If you own a small business, one thing is certain, the responsibility of retirement planning is square on your shoulders.

Unlike an employee who may have access to a 401(k), you’re on your own so you want to put the right plan in place. First, establish your goals for your retirement savings, then work through the options for how to build your savings.

Traditional or Roth IRA – This option is best for anyone just starting out. If you’re leaving a job to start a business, you can also roll your old 401(k) into an IRA. The contribution limit in 2022 is $6,000 if you are under 50 or $7,000 if you are 50 or older. The tax advantage of this option includes either tax deduction on contributions to a traditional IRA or no immediate deduction for Roth IRA, but withdrawals in retirement are tax-free.

Solo 401(k) – This choice is good for a business owner or self-employed person with no employees (except a spouse, if applicable). For 2022, you can put up to $20,500 in a traditional 401(k), up $1,000 from 2021. The 50-and-over crowd is allowed an extra $6,500 as a “catch-up” contribution, for a total of $27,000. Employer contributions do not count toward these limits. The tax advantage of this choice is that the plan works just like a standard, employer-offered 401(k): You make contributions pre-tax, and distributions after age 59½ are taxed.

SEP IRA – Consider this option if you’re self-employed or a small business owner with no or few employees. Contributions an employer can make to an employee's SEP-IRA cannot exceed the lesser of: 25% of the employee's compensation, or. $61,000 for 2022. The tax advantage to be found is that you can deduct the lesser of your contributions or 25% of net self-employment earnings or compensation on your tax return. Distributions in retirement are taxed as income.

SIMPLE IRA – This choice is best for larger businesses with up to 100 employees. For 2022, the annual contribution limit for SIMPLE IRAs is $14,000, up from $13,500 in 2021. Workers age 50 or older can make additional catch-up contributions of $3,000, for a total of $17,000. The tax advantage for this choice is contributions are deductible, but distributions in retirement are taxed. Contributions made to employee accounts are deductible as a business expense.

Defined Benefit Plan – This can be a good option for a self-employed person with no employees, has a high income, and wants to save a lot for retirement on an ongoing basis. The contribution limit is calculated based on the benefit you’ll receive at retirement, your age and expected investment returns. The tax advantage: contributions are generally tax deductible, and distributions in retirement are taxed as income. An actuary must figure your deduction limit, which adds an administrative layer.


Small business owners have a lot to manage, so you need a partner that can take the burden of managing your savings plan off your shoulders. Contact us at (704) 216-2260 and let us guide you in finding the plan that will be best for you in 2022 and forward


This is meant for educational purposes only and should not be considered investment advice or a recommendation to take a particular course of action. Consult with a financial professional regarding your personal situation before making any financial decisions.

Adapted from NerdWallet