If you’re running your business as a sole proprietorship or a single-member LLC (taxed as a sole proprietorship), the IRS considers you self-employed. That means you have access to several powerful retirement plans that can help you save for the future while significantly reducing your taxable income.
The good news? It’s not too late to set up a plan and claim a deductible contribution on your 2024 tax return—even if you haven’t started one yet! Let’s explore your best options.
1. SEP IRA: The Simplest Way to Save Big
A Simplified Employee Pension (SEP) IRA is one of the easiest retirement plans to establish. It’s designed for self-employed individuals and small business owners, and because you have no employees, you can fully control your contributions.
Contribution Limits
For 2024, you can contribute up to 20% of your net self-employment income, with a maximum contribution of $69,000. Your net self-employment income is generally your Schedule C profit minus half of your self-employment tax.
Pros of a SEP IRA
✅ Quick Setup – You can open a SEP IRA at almost any brokerage firm with minimal paperwork. Form 5305-SEP takes just minutes to complete.
✅ No Ongoing Reporting – You won’t need to file annual IRS reports.
✅ Flexible Contributions – Contribute up to the maximum in good years, or skip contributions when cash flow is tight.
✅ Extended Deadline – You can establish and fund a SEP IRA as late as your extended tax return due date (October 15, 2025, for your 2024 return).
Example
If your 2024 net self-employment income is $345,000 or more, you can contribute the full $69,000.
Cons of a SEP IRA
🚫 No loan options—unlike some other plans, you cannot borrow from your SEP IRA.
🚫 If you’re looking to contribute more than 20% of your income, a solo 401(k) may be a better choice.
Best for:
If you prioritize simplicity and high contribution limits, the SEP IRA is a fantastic option.
2. Keogh Plan: Similar to a SEP, With Loan Options
A Keogh plan (technically called a “qualified plan”) allows you to contribute up to 20% of your net self-employment income, with the same $69,000 maximum for 2024.
Pros of a Keogh Plan
✅ Same high contribution limits as a SEP
✅ Loan option available – You may be able to borrow up to $50,000, depending on plan rules.
✅ Extended deadline – You can set up a Keogh plan as late as the extended due date of your tax return.
Cons of a Keogh Plan
🚫 If your balance exceeds $250,000, you must file IRS Form 5500-EZ annually.
🚫 No advantages over a SEP unless you need loan access.
Best for:
If you want the ability to take out a loan from your retirement account, a Keogh plan could be the right choice.
3. SIMPLE IRA: A Smart Choice for Modest Incomes
A Savings Incentive Match Plan for Employees (SIMPLE) IRA can be a great choice if your self-employment income isn’t high enough to take full advantage of a SEP or solo 401(k).
Contribution Limits for 2024
- Elective Deferral Contribution: Up to $16,000 (or $19,500 if age 50+ with catch-up contributions).
- Employer Match: Up to 3% of your net self-employment income.
Example
If you have $25,000 in net self-employment income:
- You can contribute the full $16,000 as an elective deferral.
- You can add a $750 employer match (3% of $25,000).
- Total deductible contribution = $16,750 (which is much higher than the $5,000 max you’d get with a SEP or Keogh plan).
Pros of a SIMPLE IRA
✅ Ideal for modest incomes – Can allow larger contributions than a SEP or Keogh in lower-income years.
✅ Easier and cheaper than a solo 401(k) – Less paperwork and no annual IRS filings.
✅ Completely discretionary – You don’t have to contribute if you don’t want to.
Cons of a SIMPLE IRA
🚫 Deadline Passed for 2024 – You needed to set it up by October 1, 2024, so you can’t use this plan for your 2024 taxes. However, you can set one up for 2025 before October 1, 2025.
🚫 No loan options – Like a SEP, borrowing is not allowed.
Best for:
If your income is below $100,000, a SIMPLE IRA can often allow larger contributions than a SEP.
4. Solo 401(k): The Most Powerful Retirement Plan for Sole Proprietors
A solo 401(k) (also called a one-participant 401(k) or uni-401(k)) allows you to combine two types of contributions:
- Elective Deferral Contribution – Up to $23,000 (or $30,500 if age 50+).
- Employer Contribution – Up to 20% of net self-employment income.
Contribution Example
If you have $80,000 in net self-employment income:
- Elective deferral contribution: $23,000
- Employer contribution: $16,000 (20% of $80,000)
- Total deductible contribution = $39,000 – much higher than a SEP’s $16,000 limit.
If you’re 50 or older, the max increases to $46,500.
Solo 401(k) Caps
- Under age 50: Max contribution = $69,000
- Age 50+: Max contribution = $76,500
Pros of a Solo 401(k)
✅ Highest contribution potential – Especially valuable if you’re age 50 or older.
✅ Loan option available – You can borrow up to $50,000 (if plan allows).
✅ Flexibility – You can contribute as much or as little as you want each year.
Cons of a Solo 401(k)
🚫 More complex than a SEP – Requires a plan document and administration.
🚫 Annual IRS filing required – Once your balance exceeds $250,000, you must file Form 5500-EZ.
🚫 Must be in place by year-end – Unlike a SEP, you must set up a solo 401(k) by December 31, 2024, to make 2024 contributions.
Best for:
If you want to contribute the most possible, a solo 401(k) is usually the best option—especially if you’re 50 or older.
Final Takeaways: Choose the Right Plan for You
If you’re a self-employed business owner with no employees, these retirement plans can offer huge tax savings on your 2024 return:
- SEP IRA – Best for simplicity and high-income years (max $69,000).
- Keogh Plan – Similar to a SEP but allows loans.
- SIMPLE IRA – Best for modest incomes but must be set up by October 1.
- Solo 401(k) – Best for maximizing contributions, especially if 50+ (max $76,500).
You still have time to open a SEP IRA, Keogh, or solo 401(k) before your 2024 tax deadline—so don’t miss out on these valuable tax deductions!
