Retirement Plans for Freelancers: How to Save $23,500 to $70,000 Per Year Tax-Free

Freelancers often assume that without an employer, they cannot save much for retirement in a tax-advantaged way. The opposite is true. Self-employed retirement plans allow contributions that often exceed what a typical employer 401(k) offers. A freelancer earning $150,000 can contribute up to $53,500 to a Solo 401(k) (2025), compared to the $23,500 deferral limit in a standard employer plan. The contribution is tax-deductible, reducing income tax and AGI, and the account grows tax-deferred until withdrawal.

Which plan should a freelancer choose?

The decision tree is straightforward:

Solo 401(k) if: the freelancer has no full-time employees (other than a spouse), wants to maximize contributions at income below $300,000, wants a Roth option, or wants the ability to borrow from the plan. For current guidance, see IRS Retirement Plans for Small Business. The Solo 401(k) must be established by December 31, so planning ahead is required.

SEP IRA if: the freelancer missed the December 31 deadline and needs a plan established after year-end, wants the simplest possible plan with no annual reporting (no Form 5500-EZ until the plan exceeds $250,000), or has income above $300,000 (where both plans approach the same contribution limit).

Both: A freelancer can maintain both a SEP and a Solo 401(k), but the employee deferral limit ($23,500) is shared across all plans. This doesn’t usually provide additional benefit unless there’s a specific reason to maintain the SEP (such as an existing SEP balance).

What about the Roth option?

The Solo 401(k) allows the employee deferral (up to $23,500 + catch-up) to be designated as Roth contributions. Roth contributions are made with after-tax dollars (no current deduction), but the account grows tax-free and qualified withdrawals are tax-free in retirement.

The Roth option makes sense for freelancers who expect their tax rate in retirement to be the same or higher than their current rate. For a 30-year-old freelancer in the 22% bracket, paying 22% tax now on the Roth contribution to avoid 32%+ tax on the withdrawal in 35 years is a good trade. For a 55-year-old freelancer in the 37% bracket who plans to retire at 65 with lower income, the traditional (pre-tax) contribution is usually better.

The employer contribution in a Solo 401(k) is always pre-tax, even if the employee deferral is Roth.

How do contributions affect self-employment tax?

Retirement plan contributions (SEP and Solo 401(k) employer contributions) are deducted above the line on Form 1040 (Schedule 1). They reduce AGI and income tax but do NOT reduce self-employment tax. The SE tax is calculated on Schedule SE based on the net profit from Schedule C, before the retirement deduction.

However, the employer contribution does reduce the net SE income for purposes of calculating the maximum contribution itself (creating a circular calculation that the IRS resolves with the reduced contribution rate of approximately 20% instead of 25% for sole proprietors).

For S-Corp freelancers, the retirement contribution is deducted on the S-Corp’s return (Form 1120-S), which reduces the K-1 income but doesn’t affect the W-2 wages (and therefore doesn’t affect FICA).

What about a traditional IRA?

A traditional IRA allows only $7,000 in contributions per year ($8,000 for age 50+, for 2024). This is much lower than the SEP or Solo 401(k). If the freelancer is already maximizing a SEP or Solo 401(k), the IRA deduction may be limited or unavailable (the deduction phases out for active participants in an employer plan at certain income levels).

A backdoor Roth IRA (contribute to a non-deductible traditional IRA, then convert to Roth) is available regardless of income, but the pro-rata rule (IRC 408(d)(2)) complicates the conversion if the freelancer has existing pre-tax IRA balances (including SEP IRA balances). This is one reason some freelancers prefer the Solo 401(k) over the SEP: the Solo 401(k) balances aren’t subject to the pro-rata rule, keeping the backdoor Roth path clean.

What are the filing and reporting requirements?

SEP IRA: No annual filing requirement until the plan assets exceed $250,000 (then Form 5500-EZ is required). The SEP is established by signing a Form 5305-SEP and providing it to the account custodian. No IRS filing is needed to establish the plan.

Solo 401(k): Form 5500-EZ is required annually when plan assets exceed $250,000. The plan is established by adopting a plan document (provided by the custodian or a prototype plan) and opening the account by December 31. No IRS filing is needed to establish the plan, but the plan document must be maintained.

Both plans are established at brokerage firms (Fidelity, Schwab, Vanguard) with no setup fees and no ongoing fees (other than the underlying investment expenses). The brokerage handles the custodial reporting and provides the contribution tracking.

Related guides:

• S-Corp election for freelancers, how the S-Corp salary affects retirement contribution limits

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.