By Gruv Editorial Team
You’ve mastered your craft. You juggle clients, nail deadlines, and handle your own invoicing. You are, for all intents and purposes, the CEO of a thriving business of one. But when you look at your retirement savings, does that confident feeling start to fade? Does it feel like you’re falling behind?
Let's be honest. The world of self-employed retirement plans can feel more confusing than your first tax season. That alphabet soup of acronyms—SEP, SIMPLE, Solo 401(k)—is enough to make anyone want to just close the tab and get back to client work.
But you don't have to navigate this alone, and you don’t need a finance degree to get it right. Choosing the right retirement plan isn't about finding some mythical "best" option. It's about finding the one that fits your business, your income, and your goals. It’s about making a smart choice for your future self.
In this guide, we’re going to break down the two most popular and powerful options for freelancers: the SEP IRA and the Solo 401(k). We'll skip the jargon and focus on what actually matters so you can make a confident decision and start building the future you deserve.
Let's cut right to the chase. Imagine you have two big glass jars on your desk for retirement savings.
One jar—we’ll call it the SEP IRA—lets you add a big scoop of cash at the end of the year. It's a single, powerful move. The other jar, the Solo 401(k), lets you add that same big scoop and also lets you drop in smaller, consistent handfuls of cash all year long.
Which jar do you think is going to fill up faster?
This is the most critical distinction between these two plans, and it all comes down to the hats you wear as a freelancer. With a SEP IRA, you can only contribute as the "employer." That’s you, the CEO of your business, making a profit-sharing contribution to your own retirement. This is a fantastic benefit, but it's capped at a percentage of your net business income (up to 25%). Simple. Straightforward.
But the Solo 401(k) lets you contribute wearing two hats.
First, you contribute as the "employee." This is you, the worker bee, paying yourself. You can contribute dollar-for-dollar up to the annual employee limit. Then, you put on your CEO hat and contribute again as the "employer," adding a percentage of your business profits on top of that.
This dual-contribution structure is a massive advantage. It often allows you to save significantly more money, especially if your income isn't in the high six figures yet. You aren't just relying on one big scoop; you’re adding to the jar from two different streams.
Here’s the bottom line:
Look, let’s talk about two scenarios. First: you’re over 50 and you feel that clock ticking a little louder. You see the retirement finish line getting closer, and you have this nagging feeling that you need to make up for lost time. Or second: you dream of a retirement where every dollar you withdraw is 100% yours, completely free from taxes.
These aren’t just nice-to-haves. They can fundamentally reshape your future. And this is where the Solo 401(k) truly shines, leaving the SEP IRA behind.
If you're 50 or older, the IRS gives you a powerful advantage called a catch-up contribution. Think of it as a dedicated express lane on the savings highway. For 2025, this lets you sock away an extra $7,500 into your Solo 401(k) on top of your regular contributions. It’s a direct acknowledgment that you’re in the home stretch and need to accelerate. The SEP IRA? It doesn’t have this. At all. That lane is closed. For experienced freelancers looking to max out their savings, this feature alone often makes the Solo 401(k) the obvious choice.
Then there’s the other superpower: the Roth option.
Most Solo 401(k) plans give you the choice to contribute with post-tax dollars. Let’s break that down.
This is a massive advantage, especially if you believe you’ll be in a similar or higher tax bracket in the future. While new laws have technically authorized a Roth SEP IRA, good luck finding a brokerage that actually offers one. They are still incredibly rare. The Solo 401(k), on the other hand, has had this feature built-in and widely available for years. It’s the reliable, road-tested choice for tax-free retirement income.
Here’s the bottom line:
Let’s talk about the real world for a minute. Your business is humming along, but life doesn't always stick to the plan. The roof starts leaking. Your kid needs braces. A once-in-a-lifetime business opportunity lands in your lap, but it requires a quick cash investment. This is where the conversation moves beyond just saving and into real-world flexibility.
You have to ask yourself a simple question: How much paperwork can you stomach, and how important is it to have an emergency "break glass in case of emergency" option?
Think of the SEP IRA as the ultimate minimalist’s tool. It’s brilliantly simple. You can open an account in about 15 minutes, you make contributions when you have the cash, and there’s virtually no annual upkeep. No forms. No fuss. If your primary goal is to dump money into a retirement account with the least amount of administrative headache possible, the SEP IRA is your champion. It just works.
The Solo 401(k), on the other hand, is the more powerful, feature-rich option. And with that power comes a tiny bit more responsibility. Once your account balance crosses the $250,000 mark—which, by the way, is a great problem to have—you'll need to file a simple annual information return called a Form 5500-EZ. It’s not a tax form, and it’s not nearly as scary as it sounds, but it is one more thing on your to-do list.
So why bother? For one huge, game-changing reason: loans.
With a Solo 401(k), you can take a participant loan from your own account balance. This is strictly forbidden with a SEP IRA. We've all been in a tight spot where we needed access to cash without wanting to take a massive tax hit or penalty from an early withdrawal. A loan from your 401(k) isn't a withdrawal. It’s you, borrowing from your future self, and paying yourself back with interest. It's an incredible safety valve that can make the small amount of extra admin work feel more than worth it.
Alright, you’ve absorbed a lot of information. You’ve seen the pros and cons laid out. Now comes the most important part—turning that knowledge into action and actually building your financial future. It’s easy to get stuck in "analysis paralysis," but I promise you, the choice is simpler than it seems.
This decision really boils down to a single, critical trade-off: maximum saving power versus absolute simplicity. One isn't better than the other; it's about which one is better for you, right now.
To cut through the noise, just run through this quick checklist. Find the one that makes you nod your head.
You should choose the Solo 401(k) if…
You should choose the SEP IRA if…
Take a clear-eyed look at your business, your income, and what you truly want to achieve. Once you've made your pick, the next step is straightforward: open an account with a major brokerage firm that offers your chosen plan.
Listen, don’t let the quest for the "perfect" plan stop you from getting a "great" plan started. Picking either one and funding it today is a monumental win for the future version of you who wants to enjoy a comfortable retirement. Just start. You’ll be so glad you did.
This one is the most important, so let's clear it up first. If you have employees who are not your spouse, the Solo 401(k) is off the table. It’s right there in the name: Solo. It’s designed specifically for the self-employed individual and their spouse, and that’s a hard and fast rule.
If you have a team, the SEP IRA is going to be your go-to choice. It’s designed for small businesses and allows you to make contributions for yourself and your employees. So, if you're a freelancer with a part-time assistant or a growing team, the decision is essentially made for you.
Technically, the IRS rules might let you have both open. But should you? Absolutely not.
Think of it this way: you could try to listen to two of your favorite podcasts at the same time, one in each ear. You could do it, but you wouldn’t get the full value from either one, and you’d probably just end up with a headache. It's the same here. The contribution limits are shared between the plans, which makes the accounting a nightmare. You get all the complexity with zero additional benefit.
Pick the one that fits you best. Focus your energy and your savings there. It’s simpler, cleaner, and far more effective.
First off, welcome to the club. We have all been there, riding that feast-or-famine rollercoaster of early freelance life. In this situation, the SEP IRA is a fantastic and forgiving place to start.
Why? Because contributions are 100% optional. If you have a killer quarter, you can put a nice chunk away. If you have a slow month where you’re just covering the bills, you can contribute nothing. There’s no pressure. The setup takes minutes, and there's virtually no annual upkeep. It gets you in the retirement-saving game without adding another complex task to your already-full plate.
You can always, always roll it over into a Solo 401(k) in a few years when your income is more stable and you want those extra features. Starting with a SEP IRA is a powerful first step, not a final decision.