Self-employed? Here are 3 ways to save

Allworth Co-CEO Pat McClain outlines three different types of retirement vehicles for the self-employed. 


To be your own boss. To have control over your destiny. To spend life building something that you created and are passionate about.

Being a small business owner is one of the toughest jobs that people love.

So, just how many small businesses (under 500 employees) are there in the United States?

Over 33 million, according to the Small Business Administration (SBA). But that “under 500 employees” number is deceiving as 88 percent of small businesses have fewer than 20 employees, and a large percentage of those have less than three.1

So, if you are one of the tens of millions of people who run a business, or are otherwise self-employed – as no one is funding a pension or matching the dollars you set aside in an employer-sponsored retirement plan – what are a few of the instruments you can use to financially prepare yourself for the future?

Here are 3 savings vehicles for people who are self-employed or run a small business.  


SEP IRAs are an enticing retirement savings vehicle with a lot of upside and flexibility.

Some advantages of SEPs include that they are quite easy to open, easier to administer than a solo 401(k) (less paperwork, no annual reporting to the IRS), and have high contribution limits, meaning that in 2023 you could save the lesser amount of $66,000 or 25 percent of your net self-employment earnings.

A few disadvantages of SEP IRAs include being unable to borrow against your savings (though I believe this is actually a big advantage), and that if you own a business, you must also contribute (at a ratio that is comparable in terms of percentage of pay) on behalf of your employees (though that too is a potential positive).

Additionally, there are no catch-up contributions, but with such comparatively high contribution limits, that’s less of a problem for people who start saving later in life when compared to those individuals who are using an employer-sponsored 401(k), or a traditional IRA, to prepare for retirement.  

Traditional and Roth IRAs

When just starting out, and when used in addition to other retirement savings instruments, traditional and Roth IRAs are certainly viable vehicles. (Though I’ve always been mystified by the low contribution limits.) They are, however, about the easiest of all the retirement savings mechanisms for self-employed people to launch.

Combined IRA contribution limits (traditional and Roth) for 2023 are only $6,500, but jump to $7,500 for individuals who are age 50 and over. As for tax considerations, contributions to traditional IRAs are pre-tax (so you’ll pay taxes when you withdrawal the money), while contributions to Roth IRAs are post-tax, so even if your Roth performs exceptionally well, you’ve paid all the taxes on that money that you are going to owe. (There are income restrictions to contribute to a Roth IRA.)

Lastly, if you make an IRA withdrawal and you're under the age of 59½, while there are some exceptions (a first-time home purchase, some college expenses, the birth of a child), you’ll generally owe an early withdrawal penalty of 10 percent. And if you fail to wait at least five years from the date you open a Roth IRA to take a withdrawal (and, again, you're younger than 59½), the penalty also kicks in.

Solo 401(k)

If you’re self-employed, or if you own a business with no employees (other than possibly your spouse), you can contribute the lesser amount of $66,000 or 100 percent of your earned income to a solo 401(k).

From a tax perspective, a solo 401(k) works much like an employer-sponsored 401(k), in that the money is deposited pre-tax, and then later, withdrawals are taxed as income for the year of the distribution. Money taken out before age 59½ is assigned an additional 10 percent penalty by the IRS.

While you can’t contribute to a solo 401(k) if you have employees, you can “hire” your spouse and they can contribute to the plan.


For far too many entrepreneurs, their business is their retirement plan, and the proverbial basket in which they put all their eggs. For some business owners, with all that effort and potential upside, it is far too easy to believe that saving for the future is a luxury or even unnecessary.

It isn’t. Your business is but one strand in the braided chain that is your financial future.

In my three decades spent advising clients, having first co-founded, and now continuing to guide a growing advisory firm that is also a business, I have learned that it’s sometimes the individuals who are out there risking it all on their own who benefit the most from a fiduciary advisor’s perspective.

As an entrepreneur, I know well the risks and rewards of pursuing the dream of running my own business. However, placing saving, investing, and comprehensive personal financial planning aside for a moment, had we not had the educational backgrounds that are required of fiduciary financial advisors, we likely would not have been able to avoid a lot of the most common business mistakes, and missed many of the best opportunities, that our chosen profession taught us to see coming.  


1 10 Small Business Statistics You Need to Know For 2023 (oberlo.com)