Best Retirement Accounts for Business Owners and Self Employed Individuals in 2025
As a business owner or self-employed individual, you have several excellent retirement savings options designed to help you build long-term financial security while potentially offering tax advantages. The best choice for you will depend on your specific circumstances, including your income level, whether you have employees, and how much flexibility you need. One thing I like to point out to clients is that retirement contributions are one of the few deductions where you get to 1) Reduce your taxable income and 2) Actually keep the deduction and not have to spend it.
Below are some of the most popular and effective retirement accounts to consider:
Simplified Employee Pension Plan (SEP IRA)
A SEP IRA is relatively easy to set up and maintain, making it a popular choice for sole proprietors, freelancers, and small business owners with few or no employees. Only the employer (which includes yourself, if self-employed) contributes to the plan.
Contribution Limits (2025): You can contribute up to 25% of your net self-employment income or $70,000, whichever is less. For employees, the limit is also the lesser of 25% of their compensation or $70,000.
Pros:
High contribution limits: Allows for potentially significant retirement savings.
Flexibility: You are not required to make contributions every year. You decide annually whether and how much to contribute.
Tax-deductible contributions: Contributions are tax-deductible for the business, reducing your current taxable income.
Tax-deferred growth: Your investments grow tax-deferred until retirement.
Easy setup and administration: Generally involves less paperwork than some other retirement plans.
Ability to Self Manage Freely: With a SEP IRA, you normally have a lot of freedom with what and where you can invest in. A great example is if you open up a SEP IRA at Charles Schwab, you will generally have the same freedom to invest as a normal brokerage account user (Ability to buy mutual funds, stocks, and ETFs, even Bitcoin in some cases).
Cons:
Employer contributions only: If you have employees, they cannot make their own contributions.
Uniform contributions: If you have employees, you must contribute the same percentage of pay for all eligible employees.
Deadline to establish a SEP IRA for tax year 2025: The SEP IRA must be established by the due date of the businesses income tax returns for 2025, with extensions if applicable. For example, if you are a Schedule C 1040 - Filer, you would need to have a SEP IRA established by April 15th of 2026 (When 2025 taxes are due) or by the extension date if applicable (October 15th, 2026).
Solo 401(k)
A Solo 401(k), also known as an individual 401(k) or one-participant 401(k), is designed for self-employed individuals and small business owners with no employees other than a spouse. It allows you to act as both the "employee" and the "employer," making contributions in both capacities.
Contribution Limits (2025)
As the employee: You can contribute up to $23,500. If you are age 50 or older, you can also make an additional "catch-up" contribution of $7,500, for a total of $31,000. For those aged 60-63, the catch-up contribution can be up to $11,250, potentially allowing a total employee contribution of $34,750.
As the "employer": You can also contribute up to 25% of your compensation.
Combined Limit: The total contributions as both employee and employer cannot exceed $70,000 for those under 50, $77,500 for those 50-59 or 64 and over (if making catch-up contributions), or $81,250 for those aged 60-63 (if their plan allows the higher catch-up). The maximum compensation considered for contribution purposes is $350,000 in 2025.
Pros:
High contribution potential: Allows for significant retirement savings by contributing in two roles.
Flexibility: You can vary your contributions each year and have flexibility in what you can invest in (similar to the SEP IRA)
Traditional and Roth options: You can choose to make pre-tax (traditional) or after-tax (Roth) contributions, depending on your tax strategy. Some tax planning would be needed to determine this.
Potential for loans: Some Solo 401(k) plans allow you to borrow from your account, leading to more possible cash flow if needed.
Cons:
More complex administration: Generally involves more paperwork than a SEP IRA, especially if your account balance exceeds $250,000.
Strict eligibility: Only for businesses with no employees other than a spouse. If you have employees you cannot use this plan.
Savings Incentive Match Plan for Employees (SIMPLE IRA)
A SIMPLE IRA is a retirement plan that's relatively easy to set up and maintain, suitable for self-employed individuals and small businesses with up to 100 employees. It involves both employee and employer contributions. This is best small business (non corporations) with a lot of employees.
Contribution Limits (2025):
Employee contributions: Up to $16,500. If you are age 50-59 or 64 and older, you can also make a catch-up contribution of $3,500, for a total of $20,000. For those aged 60-63, the catch-up contribution limit is $5,250, potentially allowing a total employee contribution of $21,750.
Employer contributions: You must choose between two options:
Matching contribution: Dollar-for-dollar match up to 3% of the employee's compensation.
Non-elective contribution: 2% of each eligible employee's compensation, regardless of whether the employee contributes.
Pros:
Relatively simple to set up and administer: Less complex than a traditional 401(k).
Employee and employer contributions: Allows for contributions from both sides.
Tax-deductible contributions: Employer contributions are tax-deductible for the business.
Tax-deferred growth: Investments grow tax-deferred until retirement.
Cons:
Lower contribution limits: Compared to SEP IRAs and Solo 401(k)s.
Mandatory employer contributions: You are required to make contributions each year, either as a match or a non-elective contribution.
Traditional or Roth IRA
What it is: While not exclusively for business owners (usually used for individuals), traditional and Roth IRAs are available to anyone with earned income, including the self-employed. In some cases, this may be best to set up even for business owners, as it is the easier to set up, maintain, and ensure contribution compliance.
Contribution Limits (2025): $7,000, with an additional $1,000 catch-up contribution for those age 50 and over, totaling $8,000.
Pros:
Easy to set up: Can be opened with most brokerage firms or banks.
Tax advantages: Traditional IRA contributions may be tax-deductible, and earnings grow tax-deferred. Roth IRA contributions are made with after-tax dollars, and qualified withdrawals in retirement are tax-free.
Flexibility: You have control over your investments.
Cons:
Lower contribution limits: May not be sufficient for those with higher incomes or a strong desire to save aggressively.
Income limitations for Roth IRA: There are income limits to contribute directly to a Roth IRA. Traditional IRAs begin have a contribution phase out (meaning you cannot contribute anymore) once your modified adjusted gross income hits $79,000. Roth IRAs begin to have a contribution phase out once your modified adjusted gross income hits $150,000.
Remember, Traditional IRAs are considered pre tax, meaning you defer (don’t pay) the income tax on the amount contributed now and pay taxes when you withdraw the funds for retirement later. For Roth IRAs, you pay taxes on the amount contributed now, but you will never pay taxes on that money or the gains ever again, this is considered a “Tax Shelter”.
Overall, there are many different retirement accounts business owners and self employed individuals can use. They all have different pros and cons and their own complexities. I would recommend figuring out how much you want to begin saving for retirement and set up a plan. The retirement accounts can be part of your businesses and individual overall tax strategy.
