IRA Options When You Work for Yourself

01Four accounts, and what actually separates them

There are four you are likely to be choosing between: a traditional or Roth IRA, a SEP-IRA, a SIMPLE IRA, and a solo 401(k). They differ on three things that matter far more than the marketing does — how much you can put in, who else you have to cover, and how much administration you are signing up for. The IRS overview of IRAs is the neutral starting point.

02The question that usually settles it

Do you have employees? Not contractors — employees. If the answer is no, the field is wide open and the decision comes down to contribution room versus paperwork. If the answer is yes, some of these options get expensive fast, because they oblige you to contribute for your people too. That single fact eliminates more options than anything else on the list.

03If it is only you

A SEP-IRA is the low-effort choice: little setup, no annual filing at typical sizes, and a contribution based on a percentage of your net self-employment earnings. A solo 401(k) generally lets you get more in at the same income, because you contribute both as the employee and as the employer — but it is a real plan with real administration once the balance grows. The IRS page on one-participant 401(k) plans sets out the difference plainly.

04If you have people on payroll

This is where owners get caught. A SEP requires the employer to contribute at a uniform rate for every eligible employee. If you put in 20% for yourself, that same 20% of compensation goes in for everyone who qualifies. A SIMPLE IRA works differently, with employee deferrals plus a required employer match or contribution. Neither is wrong — but the cost of the two is very different once there is a payroll, and that should be modelled before the account is opened, not after.

05The ordinary IRA still has a place

A traditional or Roth IRA has a much lower ceiling than the business plans, and it is not tied to your business at all. That makes it the fallback when your self-employment income is modest, or a supplement alongside a business plan. Deductibility and Roth eligibility both depend on income and on whether you are covered by a workplace plan; the IRS publishes the current thresholds and they move most years.

06Where the tax benefit actually lands

Contributions to the pre-tax versions generally reduce taxable income in the year you make them, which is what makes this one of the few decisions that helps now and later at the same time. But the deduction is only worth what your marginal rate makes it worth. In a low-income year, deferring the deduction — or using a Roth — can be the better call. That is a numbers question, and it is answerable before you commit.

07What I do and what I do not

I help owners work out what they can sustainably contribute, what each option costs once employees are in the picture, and what the deduction is actually worth against their marginal rate. I am not a registered investment adviser and I do not tell anyone what to invest in. Choosing the account and choosing the investments inside it are two different jobs.

This article is general information, not individualized tax, legal, or financial advice. Every situation is different — reach out and we'll look at yours directly.