Self-Employed? 4 Ways to Secure Your Retirement

Self-employment offers plenty of perks. You are your own boss and have the opportunity to adapt your business operations to your exact circumstances. For some people, it’s the ultimate goal of their professional lives.

With all that freedom comes additional considerations, however. There are self-employment taxes to be paid, insurance to acquire, and — an area that sometimes gets overlooked — retirement to fund. Without an available employer-sponsored 401(k), you might be tempted to just open an IRA and leave it at that.

While an IRA is a fine retirement tool, its low contribution limits might leave you unable to set aside sufficient funds. Here are four other methods of retirement for self-employed individuals that you may want to consider. 

1. Solo 401(k) 

If you’re a business owner and have no employees, a solo 401(k) is a solid option for retirement. The plan is especially valuable if you plan on making large contributions on a regular basis.

The main draws of a solo 401(k) are typically contribution limits and the option to include a spouse. Your spouse is the only exception to the “no employees” rule and must earn wages in your business. Contribution limits for 2022 are $61,000 per year with an additional $6,500 allowed for those age 50 or older. As with many company-sponsored 401(k) plans, there are options to contribute on a pre-tax or post-tax basis.

There are a couple of disadvantages, however. First, you’ll need to file an annual 5500 Form if your total assets are more than $250,000. That can add additional administration costs to the plan. Second, things can get tricky if your business expands and hiring additional employees becomes necessary. Depending on your plan provider, you would likely need to dissolve your solo 401(k) and open another plan type.


A SEP IRA is available to business owners both with or without employees. In what could be considered either a pro or a con, you and your employees must receive equal contributions. This is calculated by a percentage rather than a flat dollar amount.

Let’s say you make $75,000 in wages and decide to contribute $7,500 to your SEP IRA. Since you have contributed 10% of your earnings, you must also contribute 10% of your employees’ earnings to their retirement accounts. As the employer, you are the only one allowed to contribute funds to your employees. They cannot defer their own wages.

A SEP IRA works well when you have zero or few employees. There are no annual 5500 tax returns necessary, and administration is relatively straightforward. Once you have more than three or four employees, however, your contribution costs can skyrocket. At that point, it might be more beneficial to choose an alternative such as a SIMPLE 401(k).

3. Real Estate

If stocks and bonds make you nervous, there are other, more tangible investment options available. Purchasing rental properties over the course of years or even decades can yield a solid income-generating asset class for retirement.

You also have varying degrees of involvement available to you for rental properties. To save money, you can put in the time to manage your properties yourself, including the necessary repairs and paperwork. Alternatively, you can hire a property management company to take over those tasks for you. This will cut into your profits, but you might decide it’s worth the convenience factor.

No matter who oversees your properties, you should work with an experienced retirement advisor. They can help you determine whether your rentals are on track to provide adequate funds in retirement. If not, you may want to supplement your real estate assets with a more standard method such as an IRA.

4. Increase Your Spouse’s Deferrals

What if your spouse is employed and has the opportunity to participate in a company-sponsored 401(k)? Wouldn’t it make sense to have your spouse defer as much as possible to the plan and use your earnings for expenses? This can be a useful way of boosting your total household retirement funds. However — most emphatically and louder for those in the back — it shouldn’t be your primary method of self-employed retirement savings. 

So why shouldn’t you just piggyback on your spouse’s 401(k)? Surely it’s less complicated than opening up your own SEP or IRA. While that is technically true, the risks are frankly not worth the convenience.

The biggest risk, of course, is the possibility of divorce. If your spouse’s name is on all the household retirement funds, you could be looking at either no money or a court battle. In today’s world, it’s easier than ever to open your own retirement account and contribute funds. Skipping that small effort is something you will almost certainly regret if your marriage ends.

If that possibility doesn’t deter you, increasing your spouse’s 401(k) deferrals is an excellent way to supplement total household retirement in certain situations. The most obvious example is when your self-employment income is high enough to max out your chosen retirement method. If you regularly contribute the upward limit to your self-employed plan every year, your spouse could absolutely increase deferrals.

Don’t Leave Retirement on the Back Burner

Money is sometimes tight when you’re first embarking on your self-employment journey. Getting a long-term retirement strategy in place might seem like a task that can wait until the big bucks roll in. By the time retirement approaches, however, you may find yourself out of time to let your money grow.

So make sure that your business plans include a strong retirement planning component. By determining which method is best for you, retirement can be one less thing to worry about.