Pension Plans for Self-Employed Individuals: What Are Your Options?

24 February 2025

Let’s be honest—being your own boss is awesome. No annoying supervisors, no rigid 9-to-5 schedules, and most importantly, the freedom to build your dreams. But there’s a catch: when you’re self-employed, no one’s setting up a retirement fund for you. That responsibility? It’s all yours.

If you’re a freelancer, solopreneur, or small business owner, figuring out how to save for retirement can feel like trying to solve a jigsaw puzzle in the dark. The good news? You have options—plenty of them. And today, we’re diving into exactly what those options are, so you can take charge of your financial future like the boss you are.

Why Retirement Planning Matters (Especially if You’re Self-Employed)

Retirement planning might seem like something you can hit the snooze button on, especially when you’re juggling client deadlines or worrying about cash flow. But here’s the thing: the earlier you start, the better off you’ll be.

Think about your future self. You don’t want to be working in your 70s just because past-you didn’t prioritize saving, do you? (Unless you love the grind, of course!) Even small, regular contributions can grow into a comfy nest egg thanks to the magic of compound interest. And trust me, future-you will thank present-you for getting ahead.

The Challenges of Retirement Saving for the Self-Employed

Before we jump into the solutions, let’s quickly acknowledge the challenges. Unlike traditional employees who might have 401(k) plans or pensions automatically set up by their employers, self-employed folks have to do all the heavy lifting. From finding the right plan to managing contributions and calculating taxes—it’s all on you.

But don’t let that intimidate you! With a little foresight and research (that’s why you’re here, right?), setting up a retirement plan is completely doable.

Pension Plans for Self-Employed Individuals: The Best Options

Now, let’s get to the good stuff. There are a variety of retirement plans available for self-employed people, each with its own perks and quirks. I’ll walk you through the most popular ones so you can decide which fits you like a tailor-made suit.

1. SEP IRA (Simplified Employee Pension Plan)

The SEP IRA is like the golden retriever of retirement plans—reliable, friendly, and easy to manage. It’s specifically designed for self-employed individuals and small business owners.

- How It Works: You contribute a percentage of your income into a tax-deferred account. The contribution limit is hefty—up to 25% of your net self-employment earnings or $66,000 (for 2023), whichever is lower.
- Tax Benefits: Contributions are tax-deductible, and your investments grow tax-deferred until you withdraw them in retirement.
- Best For: Anyone who wants a straightforward, low-maintenance plan with high contribution limits.

It’s simple, effective, and doesn’t cost much to set up. Technically, there’s no annual filing requirement either, so if you’re allergic to paperwork, this could be your jam.

2. Solo 401(k) (AKA Individual 401(k))

Think of the Solo 401(k) as a powerhouse retirement plan tailor-made for self-employed individuals or those who run a business with no employees (other than you and possibly your spouse).

- How It Works: You wear two hats—employee and employer. This means you can contribute twice: once as an employee (up to $22,500 for 2023) and again as an employer (up to 25% of your earnings).
- Tax Benefits: Contributions reduce your taxable income, and investments grow tax-deferred. Bonus: there’s a Roth option if you’d prefer tax-free withdrawals down the line.
- Best For: High earners who want to maximize their retirement savings.

The Solo 401(k) is like having a Swiss Army knife—it offers flexibility and allows you to sock away more money than many other plans.

3. Traditional IRA or Roth IRA

If you’re looking for something simple that doesn’t require a business setup, IRAs are a great option. Anyone with earned income can open one, and they’re perfect for supplementing other retirement plans.

- Traditional IRA: Contributions are tax-deductible (subject to income limits), and your investments grow tax-deferred. You’ll pay taxes when you withdraw money in retirement.
- Roth IRA: Contributions are made with after-tax dollars, but withdrawals are completely tax-free down the line. Bonus: no required minimum distributions (RMDs) during your lifetime.
- Contribution Limit: Up to $6,500 annually (or $7,500 if you’re 50 or older in 2023).

IRAs are like the classic blue jeans of retirement planning—affordable, versatile, and a good fit for just about anyone.

4. Defined Benefit Plan

Want to go big? A defined benefit plan is worth considering, especially if you’re a high-income earner. These plans function a bit like traditional pensions, allowing you to set a targeted retirement income.

- How It Works: You contribute a set amount annually, based on your income and desired retirement payout. The annual contribution limits can reach up to $245,000 for 2023.
- Tax Benefits: Contributions are tax-deductible, and investments grow tax-deferred.
- Best For: High-income individuals looking to maximize their retirement savings to the fullest.

Let’s be real—defined benefit plans are the Ferraris of retirement plans. They’re not for everyone, but they can be insanely powerful if you’re earning big bucks.

5. Health Savings Account (HSA)

Wait, what does healthcare have to do with retirement? A lot, actually. An HSA isn’t a retirement plan per se, but it’s an incredibly tax-efficient way to save for future healthcare expenses—and even retirement itself.

- How It Works: You contribute pretax dollars into your HSA, which can then be used for qualified medical expenses tax-free. After age 65, you can withdraw funds for any purpose (not just medical expenses), though non-medical withdrawals are taxed like a traditional IRA.
- Contribution Limit: $3,850 for singles or $7,750 for families (2023), plus an extra $1,000 if you’re 55 or older.
- Best For: Savvy savers who want to kill two birds with one stone—healthcare coverage now and retirement savings for later.

Think of an HSA as your retirement sidekick: small but mighty, and perfect for covering healthcare costs that’ll inevitably crop up as you age.

How to Pick the Best Option for YOU

Okay, so now you know the options—but how do you choose the right one? Here are a few questions to ask yourself:

1. What’s my income level?
If you’re raking in the dough, a Solo 401(k) or defined benefit plan lets you save more. If you’re just starting out, an IRA or HSA might be all you need.

2. How much can I realistically contribute?
Be honest with yourself. The best plan is the one you can stick with.

3. Am I looking for simplicity or flexibility?
Want a hands-off approach? Go with a SEP IRA. Need more features like a Roth option? Solo 401(k) might be better.

4. Do I need immediate tax breaks?
Traditional retirement accounts lower your taxable income now, while Roth accounts give you a break down the road.

Don’t Forget About Taxes and Fees

One last thing—always consider the tax implications and administrative costs of any retirement plan you choose. Some plans, like the Solo 401(k) or defined benefit plan, come with more paperwork and potential fees. Others, like IRAs, are super low-maintenance. The key is to do your homework (or work with a financial advisor) to avoid surprises.

Conclusion: Your Retirement Destiny Is in Your Hands

As a self-employed individual, you wear a lot of hats—CEO, marketer, accountant, and more. And now, you can add “retirement planner” to the mix. But here’s the truth: taking control of your financial future isn’t just another chore. It’s an investment in you.

Pick a plan that fits your goals, start contributing what you can, and let time and compound interest do the rest. Whether you’re saving with an IRA, splurging on a Solo 401(k), or going big with a defined benefit plan, the key is to start. Your future self is counting on you.