Retirement Savings
SEP IRA, Solo 401(k), and retirement deductions for freelancers
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Can I do a backdoor Roth conversion with a Solo 401(k)?
Yes, but your Solo 401(k) pre-tax balance affects the pro-rata rule for backdoor Roth conversions. With $50,000 in a Solo 401(k), converting a $6,000 non-deductible IRA results in ~$4,800 taxable income instead of zero taxes.
What are the best Solo 401(k) providers for freelancers?
Top Solo 401(k) providers for freelancers include Fidelity (no fees, $23 trades), Charles Schwab (no fees, limited fund selection), and Vanguard (low-cost funds, $20 annual fee). High earners saving $50,000+ annually should prioritize low expense ratios over account fees.
Can I contribute to a SEP-IRA and a personal Roth IRA?
Yes, you can contribute to both a SEP-IRA and Roth IRA in the same year, but Roth IRA contributions are limited by income. For 2026, Roth IRA contributions phase out between $146,000-$161,000 (single) or $230,000-$240,000 (married filing jointly), while SEP-IRA contributions aren't income-limited.
Can I contribute to a SEP-IRA and a personal Roth IRA?
Yes, you can contribute to both a SEP-IRA and personal Roth IRA in the same year, but your Roth IRA contribution may be reduced or eliminated if your income exceeds $153,000 (single) or $228,000 (married filing jointly) in 2026.
Can I have a Solo 401(k) with a Roth option?
Yes, most Solo 401(k) providers offer a Roth option, allowing you to contribute up to $23,500 in after-tax Roth contributions plus up to 25% of net self-employment income. You can even split contributions between traditional (pre-tax) and Roth (after-tax) in the same year for maximum tax optimization.
Can I hold real estate or alternative assets in my Solo 401(k)?
Yes, Solo 401(k) plans can hold real estate, precious metals, and other alternative assets, but only through self-directed custodians. Most major brokerages don't allow this. You must avoid prohibited transactions or face a 15% excise tax plus potential plan disqualification worth hundreds of thousands in penalties.
Can I make catch-up contributions to a Solo 401(k)?
Yes, Solo 401(k) participants aged 50 and older can make catch-up contributions. In 2026, the total limit increases from $70,000 to $77,500 ($7,500 catch-up). Ages 60-63 get an additional super catch-up of $11,250, allowing total contributions up to $81,000 annually.
Can I set up a retirement plan for my freelance business?
Yes, freelancers can set up retirement plans including SEP-IRAs (up to $69,000 annually), Solo 401(k)s (up to $69,000), or SIMPLE IRAs (up to $19,500). These plans offer higher contribution limits than traditional IRAs and significant tax deductions, with SEP-IRAs being the easiest to establish.
How does a cash balance plan differ from a defined benefit plan?
A cash balance plan is a hybrid retirement plan that combines features of defined benefit and 401(k) plans. Unlike traditional defined benefit plans that promise a monthly pension, cash balance plans show an account balance that grows with annual credits (typically $100,000-$400,000+ for high earners) plus interest, offering more predictable contributions and portability.
How does a defined benefit plan work for high-earning freelancers?
A defined benefit plan allows high-earning freelancers to contribute $200,000-$300,000+ annually to retirement (vs. $69,000 SEP-IRA limit), but requires actuarial calculations, annual administration costs of $3,000-$8,000, and mandatory contributions for employees if you have any.
How does hiring employees affect my retirement plan options?
Hiring employees eliminates Solo 401(k) eligibility and requires including all workers in retirement plans. A freelancer earning $100,000 who could contribute $69,000 solo might face $8,000-25,000 in annual employee retirement costs depending on the plan chosen.
How do I catch up on retirement savings as a late-starting freelancer?
Late-starting freelancers can rapidly catch up using SEP-IRAs (up to $69,000 annually in 2026) and Solo 401(k)s with catch-up contributions ($34,750 if 60-63). A 45-year-old earning $100,000 could save $25,000+ annually across multiple accounts, potentially accumulating $500,000+ by age 65.
How do I catch up on retirement savings as a late-starting freelancer?
Late-starting freelancers can contribute up to $70,000+ annually using SEP-IRAs, Solo 401(k)s, and catch-up contributions. A 50-year-old freelancer earning $100,000 can save $31,000 in a Solo 401(k) plus $8,000 in an IRA — that's 39% of income with immediate tax deductions.
How do retirement contributions reduce self-employment tax?
Retirement contributions to SEP-IRAs and Solo 401(k)s reduce self-employment tax by lowering your net self-employment income. If you earn $100,000 and contribute $25,000 to a Solo 401(k), you save approximately $3,825 in self-employment taxes (15.3% on the reduced income base).
How does a defined benefit plan work for high-earning freelancers?
A defined benefit plan allows high-earning freelancers to contribute $100,000-$350,000+ annually (depending on age and income) by promising themselves a specific monthly retirement benefit. The required contribution is actuarially determined and typically ranges from 25-40% of net self-employment income.
How does a SIMPLE IRA work for freelancers?
A SIMPLE IRA lets freelancers contribute up to $16,000 annually (2026 limit) plus a 3% employer match they pay to themselves, totaling up to 25% of net self-employment income. Unlike SEP-IRAs, SIMPLE IRAs work even with employees and have lower administrative costs.
How does hiring employees affect my retirement plan options?
Hiring employees eliminates Solo 401(k) eligibility and requires equal retirement contributions for all eligible staff under SEP-IRAs. A Solo 401(k) allows $69,000 contributions, but with employees, you're limited to SIMPLE IRAs ($16,000-$19,600) or regular 401(k)s with complex administration.
How much can I contribute to a SEP-IRA in 2026?
For 2026, you can contribute up to 25% of your net self-employment income to a SEP-IRA, with a maximum contribution of $70,000. Your contribution is based on your Schedule C profit minus half of your self-employment tax, making it simpler than Solo 401(k) calculations but with potentially lower limits.
How much can I contribute to a Solo 401(k) in 2026?
For 2026, you can contribute up to $70,000 to a Solo 401(k) ($77,000 if 50+, $80,750 if 60-63). This includes $23,500 as an employee contribution plus up to 25% of your net self-employment income as an employer contribution, based on your Schedule C profit minus half of self-employment tax.
How do I calculate the maximum SEP-IRA contribution?
Your maximum SEP-IRA contribution is 25% of your net self-employment earnings after reducing for the deductible portion of self-employment tax. For someone earning $100,000 in freelance income, the maximum contribution would be approximately $18,587, not $25,000.
What is an individual 401(k) custodian and how do I choose one?
An individual 401(k) custodian is a financial institution that holds and manages your Solo 401(k) assets. Top choices include Fidelity (no fees, excellent fund selection), Vanguard (low-cost index funds), and Charles Schwab (no minimums). Fees can range from $0-100+ annually, potentially costing thousands over decades.
What is the maximum defined benefit plan contribution?
The maximum defined benefit plan contribution for 2026 is the lesser of 100% of average compensation or the amount needed to fund an annual benefit of $275,000 (starting at age 65). For most high earners, this translates to contributions of $100,000-$350,000+ annually, with higher limits for older participants.
What is the maximum retirement contribution for a freelancer?
The maximum retirement contribution for freelancers in 2026 ranges from $7,000 (IRA) to $300,000+ (defined benefit plans). Most freelancers can contribute up to $69,000 via SEP-IRA or $92,500 via solo 401(k), representing 25% of net self-employment income plus potential employee deferrals.
How do I roll over my old employer 401(k) into a Solo 401(k)?
You can roll over an old employer 401(k) into a Solo 401(k) through a direct trustee-to-trustee transfer, avoiding taxes and penalties. Complete the rollover within 60 days if doing an indirect rollover. Most Solo 401(k) providers accept rollovers, and the combined balance counts toward the $250,000 Form 5500-EZ reporting threshold.
What is the self-employment income calculation for retirement contributions?
Self-employment income for retirement contributions equals your net Schedule C profit minus half of your self-employment tax. For $80,000 in net profit, you'd subtract approximately $5,652 (half of $11,304 SE tax), leaving $74,348 as your retirement contribution base.
How does the self-employment tax deduction affect retirement contribution limits?
The self-employment tax deduction reduces your net self-employment income, which lowers your retirement contribution limits. For example, if you earn $100,000 in freelance income, after the $7,065 self-employment tax deduction, your contribution base becomes $92,935, reducing your maximum SEP-IRA contribution from $25,000 to $23,234.
How does the self-employment tax deduction affect retirement contribution limits?
The self-employment tax deduction reduces your net earnings from self-employment, which directly affects retirement contribution limits. For every $1,000 in self-employment income, you can typically deduct about $76.50 in self-employment tax (7.65% of 92.35%), lowering your contribution base and potentially saving hundreds in retirement planning calculations.
Can I have a SEP-IRA and also contribute to my employer's 401(k)?
Yes, you can contribute to both a SEP-IRA and an employer 401(k) in the same year. The SEP-IRA is based on self-employment income while the 401(k) uses W-2 wages, with separate annual contribution limits of $70,000 and $23,500 respectively for 2026.
Can I contribute to a SEP-IRA and a Roth IRA in the same year?
Yes, you can contribute to both a SEP-IRA and a Roth IRA in the same year. For 2026, you can contribute up to 25% of net self-employment earnings (max $70,000) to a SEP-IRA plus up to $7,000 to a Roth IRA, assuming you meet income limits.
How do I calculate my SEP-IRA contribution based on net self-employment income?
Your SEP-IRA contribution is 25% of your net self-employment earnings after deducting half of your self-employment tax. For $100,000 in freelance profit, you'd contribute up to $20,000 after accounting for the $7,065 self-employment tax adjustment.
What is the deadline to set up and fund a SEP-IRA?
You can set up and fund a SEP-IRA until your tax filing deadline, including extensions. For 2026 taxes, that's April 15, 2027, or October 15, 2027 with an extension. This allows contributions up to 25% of self-employment income or $69,000, whichever is less.
SEP-IRA vs Solo 401(k) — which is better for freelancers?
Solo 401(k)s are better for most freelancers because they allow higher contributions — up to $70,000 vs $17,500 for SEP-IRAs in 2026. Solo 401(k)s also offer loan options and Roth contributions, while SEP-IRAs are simpler to set up and maintain with lower administrative burden.
What is the SIMPLE IRA option for freelancers with employees?
A SIMPLE IRA allows freelancers with employees to contribute up to $16,000 annually ($19,500 if 50+) while requiring equal employer contributions for all eligible workers. Unlike SEP-IRAs, you can't contribute more than 25% of compensation, but employees can also make their own contributions.
What is the SIMPLE IRA option for freelancers with employees?
A SIMPLE IRA allows freelancers with employees to contribute up to $16,000 in 2026 ($19,500 if 50+) while requiring 2-3% matching for all eligible employees. It's easier to administer than a 401(k) but costs roughly $2,000-4,000 annually per employee in matching contributions.
What is the deadline to set up a Solo 401(k)?
Solo 401(k)s must be established by December 31st of the tax year, but can be funded until your tax filing deadline plus extensions. For 2026, you must set up by December 31, 2026, but can fund until April 15, 2027 (or October 15 with extension).
What is the deadline to make Solo 401(k) employee contributions?
Solo 401(k) employee contributions must be made by December 31st of the tax year, while employer contributions can be made until your tax filing deadline (including extensions). For 2026, employee contributions are due December 31, 2026, but employer contributions can be made until October 15, 2027 if you file an extension.
Can I make both employee and employer contributions to a Solo 401(k)?
Yes, you can make both employee and employer contributions to your Solo 401(k) as a self-employed person. For 2026, you can contribute up to $23,500 as an employee contribution, plus up to 25% of your net self-employment earnings as an employer contribution, potentially totaling over $70,000 annually if you earn enough.
What is the Form 5500-EZ filing requirement for Solo 401(k)?
You must file Form 5500-EZ if your Solo 401(k) plan assets exceed $250,000 at the end of any plan year. The form is due July 31st following the plan year end, with a $330 daily penalty for late filing. Plans under $250,000 are exempt from this requirement.
Can I hold real estate or alternative assets in my Solo 401(k)?
Yes, Solo 401(k)s can hold real estate and alternative assets, but most major providers (Fidelity, Schwab, Vanguard) don't allow them. You need a self-directed Solo 401(k) from specialized custodians like Rocket Dollar or IRA Financial, which charge $300-1,000 annually plus transaction fees.
What are the reporting requirements for a Solo 401(k)?
Solo 401(k) plans require Form 5500-EZ filing when plan assets exceed $250,000 at year-end. You must also report contributions on Form 1040 and potentially file Form 8606 for after-tax contributions. Most freelancers with assets under $250,000 have minimal reporting requirements beyond normal tax return filings.
What are the best Solo 401(k) providers for freelancers?
The best Solo 401(k) providers for freelancers are Fidelity (no fees, excellent investments), Charles Schwab (low costs, good service), and Vanguard (low-cost index funds). High earners may prefer E-Trade or TD Ameritrade for additional features. Annual contribution limits for 2026 are $70,000 for those under 50.
What is a self-directed IRA for freelancers?
A self-directed IRA is a retirement account that lets freelancers invest in alternative assets beyond stocks and bonds, including real estate, private businesses, and commodities. The contribution limits are the same as traditional IRAs ($7,000 in 2026, or $8,000 if 50+), but investment options are vastly expanded.
What is an individual 401(k) custodian and how do I choose one?
An individual 401(k) custodian is a financial institution that holds and administers your solo 401(k) assets. Custodians typically charge $0-$50 annually for basic plans, but fees can reach $500+ for complex options. The choice affects your investment selection, loan options, and total returns over 20-30 years of saving.
What is a self-directed IRA for freelancers?
A self-directed IRA lets freelancers invest retirement funds in alternative assets like real estate, private businesses, or cryptocurrency. Contribution limits are the same as regular IRAs ($7,000 for 2026, $8,000 if 50+), but you can invest in virtually anything except collectibles and life insurance.
What is a SEP-IRA and how much can I contribute?
A SEP-IRA is a simplified employee pension plan for self-employed individuals and small business owners. You can contribute up to 25% of your net self-employment income or $69,000 for 2026, whichever is less. The actual percentage is 20% due to the self-employment tax deduction, making your effective limit around 20% of gross freelance income.
What is a Solo 401(k) and how does it work?
A Solo 401(k) lets self-employed individuals contribute up to $70,000 in 2026 (or 100% of self-employment income, whichever is less) by acting as both employee and employer. You can contribute $23,500 as the 'employee' plus up to 25% of net self-employment earnings as the 'employer' contribution.
What is a Solo Roth 401(k) and how does it work?
A Solo Roth 401(k) is a retirement plan for solo business owners that combines the high contribution limits of a 401(k) (up to $70,000 in 2026) with the tax-free growth and withdrawals of a Roth account. You pay taxes upfront but never pay taxes on qualified withdrawals in retirement.
What retirement accounts can freelancers use?
Freelancers can use traditional/Roth IRAs ($7,000 limit for 2026), SEP-IRAs (up to 25% of income or $69,000), Solo 401(k)s (up to $70,000 total), and SIMPLE IRAs if they have employees. SEP-IRAs and Solo 401(k)s offer the highest contribution limits for high earners.
When does a Solo 401(k) need a Form 5500-EZ?
A Solo 401(k) must file Form 5500-EZ starting the year your plan assets exceed $250,000 at year-end. For example, if your Solo 401(k) balance reaches $275,000 on December 31, 2026, you must file Form 5500-EZ by July 31, 2027.