How to Plan for Retirement When You're Self-Employed

Self-employed workers can build retirement savings through SEP-IRAs, Solo 401(k)s, and consistent contributions based on income.

  1. Calculate 20% of your net self-employment income. This is your baseline for retirement planning. If you made $60,000 in net self-employment income last year, aim to save $12,000 for retirement. This percentage accounts for the self-employment tax you pay and gives you a realistic savings target. Track your quarterly income to estimate this number throughout the year.
  2. Choose between a SEP-IRA or Solo 401(k). A SEP-IRA is simpler to set up and maintain—you contribute up to 25% of net self-employment income with no annual paperwork. A Solo 401(k) allows higher contributions because you can contribute as both employer and employee, but requires more paperwork once your balance hits $250,000. Most self-employed people start with a SEP-IRA.
  3. Open the account and set up automatic transfers. Open your chosen retirement account at a low-cost brokerage or investment company. Set up automatic monthly transfers of roughly 1/12th of your annual target contribution. If your income varies, transfer money during your busy months and pause during slow periods.
  4. Invest in broad market index funds. Once money hits your retirement account, invest it in diversified index funds that track the overall stock and bond markets. A simple approach is 80% stock index funds and 20% bond index funds if you're under 50, shifting toward more bonds as you age. Keep investment fees under 0.5% annually.
  5. Make contributions by tax deadlines. You have until your tax filing deadline (including extensions) to make the previous year's contributions. If you file by April 15th, you can still contribute for the prior tax year until that date. This flexibility helps when your income fluctuates or you have a surprisingly good year.
  6. Track contributions and adjust annually. Keep records of all contributions and review your retirement savings rate each year. If your income grows, increase your contribution percentage. If you have a lean year, contribute what you can—even $100 monthly builds the habit and grows over time.