retirement when you work for yourself

the advantage nobody mentions

Freelancing costs you the employer match, the automatic enrollment, and the HR person who explains open enrollment. What it gives you in return is capacity: self-employed people can shelter far more per year than employees can, because you get to contribute as both the worker and the business.

The catch is that nobody sets it up for you, and the default is a Roth IRA at $7,500 — leaving tens of thousands of tax-advantaged room unused every year.

one bucket vs. two

This single structural difference explains almost everything about which plan wins.

A SEP IRA is employer-funded only. There are no employee deferrals — contributions are made only by the employer, capped at 25% of compensation. For the self-employed, because half of self-employment tax is excluded from net income, that effectively works out to roughly 20% of net earnings.

A solo 401(k) gives you two hats. As the employee you defer up to $24,500 (2026), and as the employer you add up to ~25% of net self-employment earnings — with the combined total capped at $72,000.

A freelancer earning $150,000 might default to a SEP and contribute $37,500, not realizing a solo 401(k) would allow $62,000 — about $24,500 more sheltered, and roughly $5,880 in immediate tax savings at the 24% bracket.

what else separates them

Beyond the math:

• Roth option. Solo 401(k)s can include a designated Roth account for employee deferrals. SEPs generally don't offer a Roth option.
• Loans. Solo 401(k) plans typically permit loans up to $50,000. SEPs don't.
• Catch-up. Solo 401(k)s allow an extra $8,000 at 50+ (and a higher "super catch-up" for ages 60–63 under SECURE 2.0). SEP IRAs have no catch-up feature.
• Employees. Solo 401(k)s are for owner-only businesses (a spouse can participate). With a SEP, once employees enter the picture the rules can turn a simple plan into an expensive one — you generally must contribute the same percentage for eligible employees as for yourself.
• Admin. SEPs are simpler. Solo 401(k)s require a plan document and, past a balance threshold, an annual Form 5500-EZ.

if you have a day job too

Common situation: W-2 salary plus freelance income on the side. You can do both — with one important limit.

The employee deferral limit ($24,500 in 2026) is shared across all 401(k) plans you participate in. If you max it at your day job, you can't defer again in a solo 401(k). But the employer portion is separate, so you can still make profit-sharing contributions from your self-employment income.

SEP contributions are purely employer contributions, so your W-2 401(k) deferrals don't interfere — you can max your workplace 401(k) and contribute to a SEP from your side business. For side-hustlers who already max their day-job 401(k), that makes the SEP surprisingly competitive.

how to set one up

1. Calculate your net self-employment earnings — business income minus expenses, then minus half your self-employment tax. This is the number the limits are based on, not gross revenue.
2. Pick the plan. Solo 401(k) if you're planning ahead and want maximum room or a Roth option. SEP if it's already tax season, you value simplicity, or you're layering onto a maxed workplace 401(k).
3. Open it at a major brokerage. Most large providers offer both with no setup fee. The paperwork is modest; the plan document is provided.
4. Fund it and actually invest it. Same trap as any account — money sitting in cash inside a solo 401(k) is not invested.
5. Track the deadlines. Solo 401(k) established by Dec 31; contributions and SEP funding generally by the filing deadline including extensions.

the bottom line

Self-employment takes away the scaffolding and hands you a bigger container. Most freelancers only notice the missing scaffolding.

The default — contributing nothing, or only to a Roth IRA — leaves the largest tax-advantaged opportunity most self-employed people will ever have completely unused.

Your next tiny step: find your last Schedule C or your net profit number for the year. Everything above is calculated from that one figure, and you can't choose a plan without it.