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Being self-employed has, candidly, been a meaningful goal of mine since about six months into working full-time.<\/span><\/p>\n On<\/span> my ideal self-employed day, I rise at 7 a.m. (instead of my current 5:30 a.m. wake-up call) and pad around the kitchen in an impossibly chic matching silk pajama set. After an hour-long morning routine that consists of matcha lattes, transcendental meditation, and a leisurely stroll around the block, I finally sit down at my Pinterest desk to put in a few light hours of reading and writing before retiring to the den for my afternoon nap.<\/span><\/p>\n Of course, this fantasy produces a ridiculous amount of money, my hair is shinier, my teeth are whiter, and I am a happier, less stressed version of me.<\/span><\/p>\n For those of you who are self-employed, I\u2019m sure you\u2019re having a hard time reading through your twitching left eye and uncontrollable laughter. <\/span>[<\/span>Update from future, self-employed Katie: LOL.<\/span><\/i>]<\/span><\/p>\n Two obvious gripes are most common among the self-employed people I talk to: Healthcare and access to retirement accounts.<\/span><\/p>\n While I don\u2019t have any answers for you on the healthcare front, I actually think the self-employed have a distinct <\/span>advantage<\/b> when it comes to tax-advantaged retirement investing.<\/span><\/p>\n While the corporate robots (read: me) get hot and bothered about a dollar\u2011for\u2011dollar match and the ability to contribute up to $24,500 per year (2026) to our 401(k)s, self\u2011employed folks also have powerful ways to contribute to pre\u2011tax investment accounts.\u00a0<\/span><\/p>\n Am I talking about the Roth IRA?<\/span><\/p>\n No! Of course not. At $7,<\/span>5<\/span>00 per year, the Roth IRA is a great (post-tax) vehicle for both W-2 employees and the self-employed (you can open one in the straightforward way so long as you\u2019re under the income limit of $165,000 per year; if you\u2019re not, I\u2019ve got a frenzied guide to contributing to a backdoor Roth IRA<\/span> here<\/span><\/a>).<\/span><\/p>\n Takeaways, upfront:<\/span><\/p>\n I still think you should read the post because it gets into the <\/span>granular tax details<\/span>, but the main takeaway I had was this, <\/span>all the standard \u201cnot financial advice\u201d disclaimers notwithstanding<\/span>:<\/span><\/p>\n I honestly felt like the personal finance world had been holding out on me when I found out about these magnificent accounts. Let\u2019s focus on the SEP IRA first, because it\u2019s (generally) easier to set up.<\/span><\/p>\n The maximum you can contribute to a SEP IRA is\u2014are you ready for this? I hope you\u2019re sitting down\u2014$7<\/span>2<\/span>,000 per year in 202<\/span>6<\/span>.<\/span><\/p>\n The catch is that, in order to contribute the full $7<\/span>2<\/span>,000, it must represent no more than (what works out to roughly) <\/span>25<\/span>% of your net self-employment income. In other words, in order to contribute the full $7<\/span>2<\/span>,000, you\u2019d have to make roughly $<\/span>288<\/span>,000 in net self-employment income.<\/span><\/p>\n For example, if you <\/span>net<\/span> $100,000 per year in 1099 income, the most you can contribute is around $2<\/span>5<\/span>,000 (2<\/span>5<\/span>%).<\/span><\/p>\n Still, this is a hell of a lot better than the $2<\/span>4<\/span>,500 employee contribution limit <\/span>in a typical employer-provided 401(k)<\/span>.<\/span><\/p>\n Technically, a SEP IRA has an \u201cemployer-only contribution\u201d setup, but that\u2019s one of the perks of working for yourself. You are both the employer and the employee. You\u2019re contributing 2<\/span>5<\/span>% of your net 1099 income as the \u201cemployer\u201d to yourself as the \u201cemployee.\u201d Weird, right?<\/span><\/p>\n The extra-dope thing about that $72,000 (if you\u2019re a high-roller earning $288,000 per year and eligible to contribute the full amount under IRS rules) is that it\u2019s generally tax-deductible, which means you won\u2019t pay taxes on it this year. With taxable income around $288,000, you\u2019d likely be in the 32% marginal federal tax bracket, which means a $72,000 contribution to a SEP IRA could generate approximately $23,040 in federal tax savings\u2014that is, $23,040 in taxes you may no longer owe this year, because you\u2019re reducing your current taxable income. and deferring taxation within your SEP IRA.<\/p>\n Incre\u00edble! To really drive the point home, you could take that $<\/span>23,040<\/span> you\u2019re saving and invest it in a taxable investing account to double your fun.<\/span><\/p>\n You\u2019ve got until the filing deadline to make your contributions, which means (in a normal year) you\u2019ll be contributing from April 15 to April 15 (i.e., tax season to tax season).<\/span><\/p>\n This means, if you\u2019re reading this in March of 2026 and you haven\u2019t filed your taxes yet, you can open a SEP IRA, make contributions, and deduct it before you file to save yourself some tax dollars for the 2025 #TaxSzn.<\/span><\/p>\n One weird tax caveat that I don\u2019t all-the-way-understand, but mostly get it (sue me!)<\/span>: Technically<\/span>, it\u2019s not <\/span>quite<\/b> as baller as it sounds, because you\u2019ve got to pay your self-employment taxes on your net income (profits \u2013 expenses) before you can calculate your 25% contribution. That is: It\u2019s not 25% of your gross self-employment income (the money on those #checks), but closer to 20% of your net income less half your self-employment taxes. <\/span>plays tiny violin and begrudgingly hands back some of my Stripe funds from spreadsheet sales<\/span><\/i><\/p>\n What if you\u2019re a big side hustler and you\u2019ve got a 401(k) through your employer and a side business?<\/span><\/p>\n First of all, I\u2019d love for you to flip your hair as I congratulate you on being the Ultimate Millennial Hustle Culture Workhorse! We love to see it. From one <\/span>ambition trauma goblin<\/span> to another, I salute you (lots of weird military references in this post; I\u2019m sorry).<\/span><\/p>\n And beyond all the hair-flipping, you\u2019re in luck!<\/span><\/p>\n You can still open and contribute to a SEP IRA even if you\u2019ve already got an employer-sponsored 401(k) through traditional, full-time work.<\/span><\/p>\n The same rules more or less apply; you\u2019re the employer in the SEP IRA situation, so you\u2019re making employer contributions to yourself as the employee.<\/span><\/p>\n You could theoretically max out your 401(k) with your regular salary at $2<\/span>4<\/span>,500 per year, then turn to your SEP IRA and contribute 20% of your net self-employment income and defer that as well (defer = make it tax-deductible and reduce your taxable income).<\/span><\/p>\n But don\u2019t take it from me\u2014straight from the IRS in this <\/span>screenshot<\/span><\/a>:<\/span><\/p>\n<\/div>\n Well, you know what I\u2019m going to say:<\/span> Betterment offers one<\/span><\/a>. They\u2019ll walk you through the process, including providing the IRS form you need to fill out and keep for your records in order to be in the clear.<\/span><\/p>\n Paid client. Views may not be representative. See <\/span>App Store<\/span><\/a> & <\/span>Google Play<\/span><\/a> reviews. Investing involves risk. Performance not guaranteed. <\/span>Learn more<\/span><\/a>.<\/span><\/em><\/p>\n\n
Introducing: The SEP IRA and Solo 401(k)<\/h2>\n
SEP IRAs<\/strong><\/h3>\n
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<\/p>\n\nHow to open your SEP IRA<\/h2>\n