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Key Takeaways

• In 2022, more than 10 million Americans described themselves as self-employed
• The benefits of self-employed retirement plans can exceed traditional plans
• Defined Benefit plans can lower taxable income by $100,000 or more annually while adding $1–2.5 million to retirement savings.

The Great Resignation saw a record 4.53 million workers quit their jobs in the U.S. in March 2022, and related events in the past few years have prompted many to start their own businesses. This year, more than 10 million Americans declared they are self-employed, the greatest number in 13 years, according to Bureau of Labor Statistics (BLS) data.

While there are advantages to being a free agent and working independently, anyone who is self-employed should realize that there are challenges with saving for retirement, since the responsibility is on the self-employed professional. Currently, 30% of those who are self-employed save for retirement intermittently and 15% aren’t even saving at all.

Advantages of Self-Employed Retirement Plans

One of the disadvantages of being self-employed is not having an employer-sponsored retirement plan. Self-employed individuals don’t automatically get the retirement options offered by most employers, such as a 401(k) plan with a company match on employee contributions. However, the benefits of self-employed retirement plans can exceed the benefits of traditional plans and allow individuals to save much more than one ever could with a traditional employer plan. Some of these retirement solutions provide the ability to save money for retirement at an accelerated rate in a short amount of time such as a high-contribution pension plan.

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Best Self-Employed Retirement Plans

Here are the best retirement plans for self-employed individuals for 2022. These plans may be ideal for small business owners, independent consultants, physicians, contractors and other self-employed workers.

SEP-IRA

SEP-IRAs or Simplified Employee Pension IRAs are a traditional IRA for self-employed people and small-business owners. SEP-IRAs are easy to open, low maintenance and offer high contribution limits. SEP contributions are tax deductible up to the maximum allowed per year and can be applied to the previous year’s taxable income, up to the due date and including extensions for the prior year’s tax return.

Solo 401(k)

Solo 401(k) is an individual 401(k) designed for a business owner with no employees. It allows for higher contributions than a SEP-IRA or SIMPLE plan that are flexible in timing and amount, while providing the same tax benefits of a regular 401(k) without the costs and traditional employer/employee structure.

Defined Benefit Plans for Self Employed

A Defined Benefit plan is a qualified employer-sponsored retirement plan in which you set a target annual retirement benefit. These plans help self-employed and small business owners save aggressively for retirement by allowing very high contributions. Defined Benefit plans can lower taxable income by $100,000 or more annually while adding $1–2.5 million to retirement savings.

If you’re interested in building your retirement, see how much you can contribute and save in taxes with our Defined Benefit plan calculator.