Self-employed retirement plans: 6 options to consider

By Jason R. Friday, CFP®, MPAS®, RICP®, CMFC, Head of Financial Planning | Citizens Wealth Management

If you're self-employed or a small business owner, you know that retirement planning doesn't happen automatically.

Without an employer-sponsored plan providing a built-in framework, retirement planning can require a more hands-on approach to evaluating plan options and implementing the right solution. If you have employees, you may also be responsible for selecting and managing a retirement plan that works for them.

The good news is that there are several retirement savings options designed specifically for self-employed individuals and small business owners. Here are six options to consider.

Retirement plans for self-employed individuals and small business owners

1. Solo 401(k)

A solo 401(k), also known as a self-employed 401(k), is a retirement plan for business owners with no employees, other than a spouse who earns income from the business.

One of the primary benefits of a solo 401(k) is the ability to contribute as both employee and employer, allowing for higher contribution limits than many other retirement options.

For 2026, total contributions can reach up to $72,000, depending on income and plan design.¹ Those age 50 or older may be eligible to make additional catch-up contributions beyond this limit, further increasing their potential retirement savings.

Solo 401(k)s can be set up as either traditional or Roth accounts. Traditional solo 401(k)s offer tax-deductible contributions and tax-deferred treatment of growth, with withdrawals taxed as ordinary income in retirement. Roth solo 401(k)s do not provide an upfront tax deduction but allow for tax-free qualified withdrawals in retirement.

2. SIMPLE IRAs

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a retirement plan for small businesses with 100 or fewer employees.

Both employers and employees can contribute. Eligible employees may choose to defer a portion of their pay into their own SIMPLE IRA accounts, while employers are required to contribute in one of two ways:

• Match employee contributions, typically up to 3% of compensation, or
• Make a nonelective contribution, generally 2% of pay, for every eligible employee, even if the employee doesn't contribute.

Contributions are usually made on a pre-tax basis, any investment growth is tax-deferred, and withdrawals are taxed as ordinary income after age 59½. Some plans may allow Roth (after-tax) employee contributions, depending on plan design.

In 2026, employee salary deferrals are capped at $17,000, with additional catch-up contributions available for participants age 50 or older. Employer contributions made on behalf of employees are tax-deductible as a business expense.²

3. SEP IRAs

A Simplified Employee Pension (SEP) IRA is generally funded only by employer contributions. This means that employees typically do not contribute to their own accounts through payroll deferrals. The employer chooses a contribution percentage and must apply the same percentage to all eligible employees, including themselves. For example, if you contribute 7% to your own plan, you must also contribute 7% for each eligible employee.

In 2026, SEP IRA contributions can be up to 25% of compensation, capped at $72,000 per person. Contributions are typically tax-deductible and investment growth is tax-deferred, however some plans may allow Roth contributions.³ Employer contributions made on behalf of employees are tax-deductible as a business expense.⁴

Businesses of any size can establish SEP IRAs, whether you're a sole proprietor with no employees or the owner of a larger company. However, it can become expensive as you add employees, since you must contribute the same percentage of compensation for all eligible workers. As a result, SEP IRAs are typically best suited for self-employed individuals or small businesses with few or no employees.

4. Defined benefit plans

A defined benefit plan, sometimes referred to as a pension, provides a fixed, predetermined benefit in retirement. The employer is responsible for making contributions and managing investments to ensure the benefit is funded.

One of the primary advantages is the ability to contribute significantly more to it than other retirement plans, especially for older, high-income business owners who want to accelerate their savings.

However, defined benefit plans are more complex and costly to administer than other options. They require ongoing funding commitments and professional oversight, making them best suited for business owners with stable income and long-term planning horizons.⁵

Individual retirement and savings accounts

Some business owners also use individual accounts alongside a business retirement plan to supplement their savings.

5. Traditional or Roth IRA

Individual retirement plans (IRAs) are available to anyone with earned income, including the self-employed. There are two main types:

• Traditional IRAs may offer tax-deductible contributions, depending on your income and whether you or your spouse is covered by a workplace plan. Investment growth is tax-deferred and withdrawals in retirement are taxed as ordinary income.
• Roth IRAs are funded with after-tax dollars, so there's no upfront tax deduction. However, qualified withdrawals after you reach age 59½ and meet the five-year rule are completely tax-free.

For 2026, the annual contribution limit is $7,500, or $8,600 if you're age 50 or older for both traditional and Roth IRAs.

Roth IRA contributions are subject to income limits as well. For single filers, the ability to make contributions phases out for those with a modified adjusted gross income (MAGI) from $153,000 to $168,000. For married couples filing jointly, the phaseout range is $242,000 to $252,000.⁶

6. Health savings account

If you're enrolled in a high-deductible health plan (HDHP), a health savings account (HSA) can serve as both a health care savings tool and a supplemental retirement account.

HSAs offer three tax advantages:

• Your contributions are tax-deductible today.
• Any investment growth in the account is tax-deferred.
• Withdrawals for qualified medical expenses are tax-free.

Before age 65, non-qualified withdrawals incur a 20% penalty in addition to any income taxes owed. However, after age 65, you can use HSA funds for any expense without owing a penalty, though income taxes still apply. You can also continue to use HSA dollars tax-free on eligible health care expenses in retirement.

For 2026, the annual contribution limit is $4,400 for individuals and $8,750 for families.⁷

Comparing self-employed retirement plans

As your business grows and changes, your retirement strategy may need to change with it. With access to a team of specialized professionals, including Citizens Business Banking Relationship Managers, a Citizens Wealth Advisor can help you develop a retirement plan that aligns with your business strategy, personal financial goals and long-term vision.

Request a call