Retirement for the self-employed: Roth IRA vs. SEP IRA vs. Solo 401(k)

Saving for retirement at 22 can feel ridiculous. You’re trying to cover rent, build a business, and figure out quarterly taxes. Retirement is a problem for a much older version of you.

Here’s the thing, though: when you’re self-employed, nobody signs you up for a 401(k) or matches your contributions. If you don’t set something up, nothing happens. And the biggest advantage you have right now isn’t money. It’s time.

The good news is that self-employed people have some of the best retirement accounts available. Here are the three you’ll hear about most, how each one works, and who each one fits.

Quick note: this is general info, not financial or tax advice. Talk to a tax pro or financial professional about your situation.

Two quick basics first

Traditional vs. Roth. With a traditional account, you generally get a tax deduction now and pay tax when you withdraw in retirement. With a Roth account, you pay tax now and qualified withdrawals later are tax-free. If you’re early in your career and your income is on the lower side, paying tax now at a lower rate is often appealing.

The account isn’t the investment. A retirement account is a container. Once money is in it, you still have to choose what it’s invested in, for example a broad index fund or a target-date fund. Money that sits in cash inside the account won’t grow much. Plenty of people open an account, contribute for years, and only later find out it was never invested. Check yours.

Roth IRA

How it works: You contribute money you’ve already paid tax on. It grows, and if you follow the rules, qualified withdrawals in retirement are tax-free. It’s a personal account, so you don’t need a business to open one. You just need earned income, and self-employment income counts.

2026 limit: The IRS set the IRA contribution limit at $7,500 for 2026, or your taxable compensation if that’s less. People 50 and over can add a catch-up contribution.

Income limits: Roth IRAs have income limits. For 2026, the ability to contribute phases out for single filers with modified adjusted gross income between $153,000 and $168,000, according to the same IRS announcement. Most people starting out are well under that.

Deadline: You can generally make contributions for a tax year up until that year’s tax filing deadline.

Flexibility: In general, you can take out the money you contributed (not the growth) without tax or penalty. That makes a Roth IRA feel less scary to start. Still, don’t treat it like a savings account: money you pull out loses its time to grow, and you can’t just put it back later beyond the annual limit.

Who it fits: Almost anyone starting out. If you’re only going to open one account this year, this is often the first one people choose.

SEP IRA

How it works: A SEP (Simplified Employee Pension) is a retirement plan your business sets up. You contribute as the employer. There’s no separate employee contribution. Contributions are generally pre-tax, which lowers your taxable income now, and you pay tax when you withdraw.

2026 limit: According to the IRS SEP contribution limits page, contributions can’t exceed the lesser of 25% of compensation or $72,000 for 2026. For self-employed people, “compensation” is calculated after subtracting half of your self-employment tax and the contribution itself, so your real maximum works out to less than 25% of your profit. A tax pro or tax software will do the math.

Pros: It’s simple to open at most big brokerages, there’s little ongoing paperwork, and you can decide how much to put in each year, including nothing in a slow year.

Cons: Because there’s no employee contribution, at lower incomes you can usually put in less than you could with a Solo 401(k). And if you hire employees later, you generally have to contribute for eligible employees at the same percentage you give yourself.

Who it fits: Solo creators with higher, fairly steady profits who want the simplest possible setup, or anyone who had a big year and wants a large tax deduction without extra paperwork.

Solo 401(k)

How it works: A Solo 401(k), which the IRS calls a one-participant 401(k), is for business owners with no employees other than themselves (and a spouse). You get to contribute twice, wearing two hats:

• As the employee: elective deferrals up to 100% of your compensation, up to the annual limit. For 2026, the IRS set that limit at $24,500, with an extra catch-up amount if you’re 50 or older.
• As the employer: up to 25% of your compensation, calculated using the same self-employed rules as a SEP.

Total contributions, not counting catch-up, can’t exceed the overall limit, which the IRS lists as $72,000 for 2026.

Roth option: Many Solo 401(k) plans let you make your employee contributions as Roth, so you can get the same “pay tax now, tax-free later” deal on a bigger amount. Check what your provider offers.

Pros: At the same profit, you can usually save more than with a SEP, because the employee piece lets you put away a large share of a modest income.

Cons: A bit more setup and paperwork. Once plan assets hit $250,000 at the end of a year, you generally have to file Form 5500-EZ each year. Setup and contribution deadlines can be different from IRAs, so confirm them with your provider.

Who it fits: Solo creators and freelancers who want to save aggressively, especially when profits are moderate.

Side-by-side

Can you have more than one? Generally, yes. Lots of self-employed people have a Roth IRA plus a SEP or Solo 401(k). One catch: if you also have a 401(k) at a day job, the employee deferral limit is shared across all your 401(k)s, not per plan.

Why starting at 22 matters so much

Compound growth means your money earns returns, and then those returns earn returns too. The longer it runs, the bigger each year’s growth gets, because it’s growing on a bigger pile.

Here’s the math with a made-up round number, just to show how time works. It’s not a prediction: real investments go up and down, and nobody can promise a return. Say an investment averaged 6% a year. A quick shortcut called the Rule of 72 says money roughly doubles every 72 ÷ 6 = 12 years at that rate. Money invested at 22 would get about three doublings by 58. Money invested at 34 would get about two. Same dollar, same rate, and the earlier dollar ends up roughly twice as big.

That’s why small amounts now can matter more than bigger amounts later. You can plug in your own numbers with the SEC’s free compound interest calculator.

How to start this month

1. Cover the basics first. Have your tax savings handled and at least a starter emergency fund so you won’t need to raid your retirement account.
2. Open a Roth IRA at a major brokerage. Well-known options include Fidelity, Charles Schwab and Vanguard. Compare fees and investment options.
3. Automate a monthly contribution, even a small one. You can raise it in good months.
4. Pick a diversified investment and confirm the money is actually invested.
5. Add a SEP IRA or Solo 401(k) once your profits grow. Pre-tax contributions also lower your taxable income, which affects your quarterly estimated taxes, so loop in your tax pro.

Your retirement starter checklist

• Know the difference between traditional (tax break now) and Roth (tax-free later)
• Open a Roth IRA if you have earned income and fall under the income limits
• Look at a SEP IRA or Solo 401(k) when your profits grow
• Check this year’s limits on IRS.gov, since they change annually
• Automate contributions and make sure the money is invested
• Revisit once a year, ideally when you do your taxes

Future you will be very glad present you started.