Can self-employed people get 401(k)s? If not, what can they do?

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Andrew Goldman

Andrew Goldman has been writing for over 20 years and investing for the past 10 years. He currently writes about personal finance and investing for Wealthsimple. Andrew's past work has been published in The New York Times Magazine, Bloomberg Businessweek, New York Magazine and Wired. Television appearances include NBC's Today show as well as Fox News. Andrew holds a Bachelor of Arts (English) from the University of Texas. He and his wife Robin live in Westport, Connecticut with their two boys and a Bedlington terrier. In his spare time, he hosts “The Originals" podcast.

Simply stated, 401(k)s are a retirement saving accounts for people with jobs. Don’t take that the wrong way, revered, hardworking freelancers — it’s not that self-employed people don’t work, it’s just that they don’t have employers per se, and 401(k)s are employer-administered plans.

For gig economy folks who could paper their walls with all the 1099 slips they get at year’s end, there are many other great options available to save for retirement. A SEP IRA, short for “simplified employee pension,” is the nearest equivalent to the 401(K) since it has a higher limit than any other plan, allowing tenacious savers to put away as much as $54,000 per year, or 25% of your income, whichever number is smaller. And like a 401(k), any money contributed to a SEP is considered tax-deferred, so you won’t pay a dime of taxes on your contribution until you withdraw it during your retirement.

Other options for the self-employed are traditional and Roth IRAs, but you can only contribute a combined $5,500 into those accounts. Traditional IRAs, like SEPs, are tax-deferred. With a Roth, you’ll need to pay taxes on any income you put into it, but you won’t be taxed on any growth in the account’s value between now and your retirement. One other lesser-known option is the Individual 401(k), known under the various rapper sounding aliases “Solo-k,” “uni-K” and “one-participant k.” Individual 401(k)s are available only to sole proprietorships (businesses run and owned by one person with no employees.) Like 401(k)s, Solo-ks allow for both employee and employer to contribute to the plan—but since employee and employer is only one person — that’s you — you are allowed to contribute $18,000 as an employee, and up to 20% of your income as an employer, up to a maximum combined maximum of $54,000.

Last Updated December 8, 2017

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