Best Retirement Accounts for the Self-Employed
When you decide to launch your own business or freelance career, you trade the security and structure of a traditional job — including its benefits — for the independence and flexibility of being your own boss.
This freedom also extends to how you plan for retirement. As a self-employed individual, you have access to a wider variety of retirement plans and investment options, many of which come with valuable tax advantages.
Here are some of the top retirement account options available to self-employed professionals, along with a few trusted service providers to help you manage them effectively.
1. Traditional & Roth IRAs
Best For: Self-employed individuals who are new to retirement planning or looking for a simple way to begin saving.
Almost any adult in the U.S. can open either Traditional IRA or Roth IRA.
Traditional IRA allows you to deduct your contributions on your current tax return. However, when you retire and start taking withdrawals, both your contributions and the earnings are taxed as regular income.
Roth IRA, on the other hand, doesn’t offer any upfront tax deduction. But the advantage is that your investments grow tax-free, and withdrawals during retirement are not taxed. Additionally, Roth IRAs have no required minimum distributions (RMDs), unlike Traditional IRAs, which mandate them once you reach a certain age.
Why IRAs Are Easy to Start
Opening an IRA is straightforward for several reasons:
- Accessible through major brokerages: Nearly all well-known investment firms offer IRAs. You can use them to invest in a wide range of assets like stocks, ETFs, bonds, REITs, and mutual funds.
- Robo-advisor options: Many robo-advisors provide IRA accounts, making it easy to automate your contributions and investments.
- Low or no-cost setup: You can open an IRA for free through several online brokers and robo-advisors. Most do not charge account-opening or trading fees.
Overall, IRAs are an excellent starting point for those who want to grow their retirement funds efficiently while enjoying tax advantages. Keep in mind that withdrawing funds before the age of 59½ usually triggers a 10% early withdrawal penalty, in addition to any applicable taxes.
Where to Open an IRA
If you prefer managing your own investments, consider well-known platforms like Fidelity, Vanguard, TD Ameritrade, or Merrill Edge—all of which offer commission-free trading and free account setup.
For a more hands-off approach, you can opt for robo-advisors such as SoFi Invest, Ally Invest, Betterment, or Acorns. Acorns even includes an automatic savings feature that rounds up your everyday purchases and invests the spare change for you.
2. Self-Directed IRA
Best For: Experienced investors, professional real estate investors, and advanced traders.
Some seasoned investors prefer not to limit their retirement funds to typical stock market options such as index funds or bonds. Instead, they look for opportunities in alternative assets—areas where they already have strong expertise and believe they can outperform the market.
Real estate is one of the most popular examples. Many real estate professionals can consistently generate returns of 20% or more by leveraging their market knowledge and experience, often with less volatility than traditional investments. For such investors, a Self-Directed IRA (SDIRA) can be an ideal way to invest in real estate or other private assets while still enjoying tax-deferred or tax-free growth.
However, there are a few challenges to consider. Self-Directed IRAs require a custodian—a third-party financial institution that ensures compliance with IRS regulations. These custodians typically charge setup fees, annual maintenance fees, and transaction fees. Over time, these costs can add up significantly.
In addition to fees, SDIRAs involve more complex regulatory requirements and administrative responsibilities, which can make them cumbersome for the average investor.
If you have deep expertise in a particular investment sector and can consistently outperform the market, a self-directed IRA could be worthwhile. But for most people, the high fees, complex setup, and strict compliance rules make it less practical. Even many professional investors prefer traditional or Roth IRAs, as they’re simpler and still offer strong tax advantages.
Where to Open a Self-Directed IRA
One of the most well-known real estate crowdfunding platforms, Fundrise, has partnered with Millennium Trust Company, a reputable self-directed IRA custodian. This partnership allows investors to easily include real estate investments within their retirement accounts.
If you’re interested in real estate investing through an IRA but aren’t ready to purchase properties directly, you can start by investing in real estate crowdfunding platforms. Some reliable options include Streitwise, DiversyFund, and Groundfloor—all of which allow you to gain exposure to real estate without the need to manage properties yourself.
3. SEP IRA
Best For: Self-employed professionals, solo entrepreneurs, small family-run businesses, and anyone seeking immediate tax deductions.
A SEP IRA—short for Simplified Employee Pension Individual Retirement Account—is a tax-advantaged retirement plan primarily designed for self-employed individuals and small business owners. Like other IRAs, you can open one through major brokerage firms and invest in a wide range of assets, such as stocks, mutual funds, ETFs, or bonds.
Unlike Traditional or Roth IRAs, there’s no Roth version of a SEP IRA. Your contributions are tax-deductible, reducing your taxable income for the year. However, withdrawals made during retirement are subject to regular income taxes.
A major advantage of the SEP IRA is its high contribution limit, allowing you to invest up to 25% of your income, with a maximum cap of $58,000 in 2021 and $61,000 in 2022. This makes it one of the most generous and flexible retirement plans available for self-employed professionals.
However, there’s a unique rule to note: if you have employees, you must contribute the same percentage of salary to each employee’s SEP IRA account as you do to your own. Employees themselves cannot contribute to the plan. Because of this requirement, the SEP IRA is most suitable for those who work alone or run family-based businesses, where the owner doesn’t mind making contributions for family members.
Where to Open a SEP IRA
You can set up a SEP IRA with most major investment platforms. Reputable options include Fidelity, Vanguard, and Charles Schwab, all of which offer user-friendly setup processes and flexible investment choices.
If you prefer a more hands-off approach, consider opening your SEP IRA with a robo-advisor such as Betterment or Schwab Intelligent Portfolios, which can automatically manage your investments for you.
4. SIMPLE IRA
Best For: Small businesses with up to 100 employees.
The SIMPLE IRA (Savings Incentive Match Plan for Employees) is a straightforward and cost-effective alternative to more complex 401(k) plans. It is designed for small businesses and works well for companies with employees, though it cannot be used by businesses with 100 or more employees.
One key feature is that employers are required to contribute to their employees’ accounts, but unlike SEP IRAs, the employer’s contribution doesn’t need to match the owner’s contribution percentage. Employers have two options for contributions:
- Matching contributions: Match employee contributions dollar-for-dollar up to 3% of the employee’s income.
- Non-elective contributions: Contribute 2% of each eligible employee’s compensation, regardless of whether they contribute themselves.
Another advantage is investment flexibility. SIMPLE IRAs are opened through standard brokerage firms, so participants can invest in a wide variety of securities, including stocks, bonds, ETFs, and mutual funds.
However, there is a restriction to note: funds in a SIMPLE IRA cannot be rolled over into a traditional IRA within the first two years of account opening.
Where to Open a SIMPLE IRA
Most major brokerage firms provide SIMPLE IRA accounts, including Fidelity, Vanguard, TD Ameritrade, and Charles Schwab. Some robo-advisors, like Betterment, also offer SIMPLE IRAs for a more hands-off investing approach.
It’s important to check fees carefully, as many brokerages charge account maintenance or administrative fees for SIMPLE IRAs—something not typically seen with standard IRAs.
5. Solo 401(k)
Best For: Sole proprietors and small businesses run with a spouse.
A Solo 401(k) is designed for self-employed individuals and spouse-run businesses, allowing you to contribute both as an employee and as an employer. This dual contribution structure makes it possible to invest more in a tax-advantaged way compared to other retirement accounts.
- Employee contributions: Up to $19,500 in 2021 and $20,500 in 2022, or up to 100% of your earned income.
- Employer contributions: Up to 25% of net profits, with total contributions capped at $58,000 in 2021 and $61,000 in 2022.
- Catch-up contributions: Individuals aged 50+ can add an extra $6,500 annually, subject to the same percentage limits.
These high contribution limits make the Solo 401(k) particularly appealing for older adults who want to maximize retirement savings. Unlike SEP IRAs or SIMPLE IRAs, you can also set up a Roth version of the account for tax-free growth.
If your spouse is involved in the business, they can also participate in the Solo 401(k), allowing both of you to maximize your tax-advantaged retirement contributions.
However, if you employ anyone beyond your spouse, you will need to open a standard 401(k) plan. While contributions to employees accounts are optional, you may choose to provide them for added benefits.
Another advantage of a Solo 401(k) is investment flexibility. Account holders can invest in traditional assets like stocks, bonds, and ETFs, as well as alternative investments such as real estate. In contrast, full-service 401(k) plans for businesses often limit investment options.
Where to Open a Solo 401(k)
You can open a Solo 401(k) with most major brokerages, including Fidelity, Vanguard, TD Ameritrade, Merrill Edge, and Charles Schwab. Betterment also provides robo-advisor services for Solo 401(k)s. Be sure to compare fees, as costs can vary between providers.
For businesses with employees, these brokerages also offer full 401(k) plans. Payroll and retirement service providers like ADP or investment firms like T. Rowe Price also provide robust options for managing business retirement plans.
6. Defined Benefit Plan
Best For: High-income business owners with established solo businesses and no employees.
While traditional pensions have largely disappeared from modern workplaces, it’s still possible for business owners to create their own defined benefit plan, essentially a personalized pension.
Unlike other retirement accounts, defined benefit plans allow for much larger contributions, often reaching six figures annually, based on IRS life expectancy tables. Contributions are tax-deductible, and taxes are only applied when you receive payouts in retirement. There is no Roth version of this plan.
However, these plans come with significant setup costs, administrative fees, and regulatory requirements, so they are most suitable for high earners who can make substantial contributions.
Another important consideration: if you have employees, you may be required to fund their pensions as well. This makes defined benefit plans most practical for solo entrepreneurs or family-run businesses where you might include only your spouse or children.
As with all retirement accounts, early withdrawals before age 59½ incur a 10% penalty in addition to regular income taxes.
Where to Open a Defined Benefit Plan
Few brokers offer defined benefit plans for small businesses. One notable exception is Charles Schwab, which provides personal defined benefit plans. Their fees include a one-time setup fee of $2,250 and an annual fee starting at $1,750 for one-participant plans. Fees increase if additional participants are included.
Schwab recommends considering a defined benefit plan only if you can contribute at least $90,000 per year for five or more years. This plan is best for those with very high incomes who want to maximize retirement savings and take full advantage of tax deductions.
Conclusion: Best Retirement Accounts for Self-Employed
Choosing the right retirement plan is a critical step for self-employed professionals and small business owners. Each option—whether a Traditional or Roth IRA, Self-Directed IRA, SEP IRA, SIMPLE IRA, Solo 401(k), or Defined Benefit Plan—offers unique advantages depending on your income level, business structure, and long-term goals.
For beginners or those seeking simplicity, a Traditional or Roth IRA provides an easy and flexible way to start saving. More experienced investors, especially those with expertise in real estate or alternative assets, may benefit from a Self-Directed IRA or Solo 401(k) to maximize contributions and investment options. Small business owners can leverage SEP IRAs or SIMPLE IRAs to save for retirement while providing benefits for themselves and, in some cases, their employees. High-income earners looking to contribute substantial amounts may find a Defined Benefit Plan the most effective for significant tax advantages.
Ultimately, the best plan depends on your financial goals, business setup, and desired contribution limits. Evaluating the costs, flexibility, and tax implications of each option will help ensure that your retirement savings grow efficiently and securely over time.
