5 Best Retirement Plans for Self-Employed Individuals

Published On: March 29, 2025

5 Best Retirement Plans for Self-Employed Individuals

Best Retirement Plans: If you’re self-employed, saving for retirement is even more important because you don’t have the benefit of an employer-sponsored 401(k). You’re completely responsible for securing your financial future. You might think about selling your business later to fund your retirement, but that’s uncertain. Having a dedicated retirement account can act as a financial safety net and also help you save on taxes.

First, determine how much money you need for retirement. Based on that, you can choose the best retirement plan that suits your needs. The good news is that self-employed individuals have plenty of options.

1. Traditional or Roth IRA

Best for: Self-employed individuals just starting out or those transitioning from a corporate job.

An Individual Retirement Account (IRA) is one of the easiest and most accessible options for self-employed individuals. There are two main types: Contributions are tax-deductible, but withdrawals during retirement are taxed. Contributions are made after taxes, but withdrawals in retirement are tax-free.

Key Highlights:

Contribution Limit (2024 & 2025): ₹7,00,000 (₹8,00,000 if you’re 50 or older).
Ideal for freelancers, consultants, or small business owners.
No requirement to have employees.
Simple setup process and easy management.

A Roth IRA is a great choice if your income is currently low but expected to rise in the future. The biggest advantage? Tax-free withdrawals in retirement! However, Roth IRAs have income limits, so high earners may not qualify.

2. Solo 401(k)

Best for: Self-employed individuals or business owners without employees (except a spouse).

A Solo 401(k) functions just like a regular 401(k), but it’s designed for a one-person business. You can contribute in two ways first as an employee and then as an employer.

Key Highlights:

Contribution Limit (2025): ₹70,00,000 (₹77,50,000 for those over 50).
You can contribute as both an employer and an employee.
Allows tax-deferred growth, reducing taxable income.
Available in both Traditional and Roth versions.

This plan is great for those who can contribute a high amount. Plus, if you hire your spouse, they can also contribute, effectively doubling the retirement savings for your household.

3. SEP IRA (Simplified Employee Pension IRA)

Best for: Self-employed professionals and small business owners with few or no employees.

A SEP IRA allows you to contribute up to 25% of your net earnings, making it a fantastic option for those who want to save a large amount while reducing taxable income.

Key Highlights:

Contribution Limit (2025): ₹70,00,000 or 25% of net self-employment income.
Easy to set up with minimal paperwork.
Contributions are tax-deductible.
Suitable for business owners who want to provide retirement benefits to employees.

One downside? If you have employees, you must contribute the same percentage of salary for them as you do for yourself. This can be expensive if you have multiple employees.

4. SIMPLE IRA (Savings Incentive Match Plan for Employees)

Best for: Small businesses with up to 100 employees.

A SIMPLE IRA is another retirement savings option for self-employed individuals who have employees and want to offer them benefits. Employees can also contribute to their accounts through salary deductions.

Key Highlights:

Contribution Limit (2025): ₹16,50,000 (+₹3,500 catch-up contribution for 50+).
Employers must either match employee contributions (up to 3%) or contribute 2% for all eligible employees.
Lower contribution limits than a Solo 401(k) or SEP IRA.
Withdrawals before age 59½ come with a 25% penalty within the first two years.

While it’s an attractive option for small businesses, the mandatory employer contributions can be a downside if you have a large team.

5. Defined Benefit Plan (Self-Employed Pension Plan)

Best for: High-income self-employed professionals who want to save aggressively for retirement.

A Defined Benefit Plan works like a traditional pension. You contribute based on a predetermined formula, considering factors like income, expected retirement age, and investment returns.

Key Highlights:

No fixed contribution limit determined by income, age, and plan specifics.
Tax-deductible contributions.
Higher maintenance and administrative costs.
Requires commitment to funding the plan for several years.

This is ideal for self-employed individuals earning ₹50,00,000+ per year who want to maximize retirement savings while reducing taxable income.

How to Choose the Right Plan?

If you earn a high income, consider Solo 401(k) or a Defined Benefit Plan. If your income is lower, an IRA might be a better fit. If you want tax breaks now, go for a Traditional IRA or SEP IRA. If you prefer tax-free withdrawals later, choose a Roth IRA. If you have employees, a SEP IRA or SIMPLE IRA is necessary. Plans with higher contribution limits allow for more savings over time.

Comparison of Self-Employed Retirement Plans

Retirement Plan	Who It’s Best For	Contribution Limits (2024)	Tax Benefits
Traditional IRA	Individuals with lower limits	$7,000 ($8,000 if 50+)	Tax-deductible contributions
Roth IRA	Those expecting higher taxes later	$7,000 ($8,000 if 50+)	Tax-free withdrawals
Solo 401(k)	Self-employed with no employees	$69,000 (combined)	Pre-tax savings + employer match
SEP IRA	Small business owners	25% of net earnings (up to $69,000)	High contribution flexibility
SIMPLE IRA	Businesses with <100 employees	$16,000 ($19,500 if 50+)	Employer match required
Defined Benefit Plan	High-income earners	Varies (can be $100K+)	Large tax advantages

Conclusion

Being self-employed means taking control of your own financial future. The sooner you start investing in a retirement plan, the more secure your future will be. Even small contributions today can grow into a significant amount over time. No matter which retirement plan you choose, the key is to start now. Your future self will thank you for making the smart decision to secure a comfortable retirement.