Retirement Plans for the Self-Employed: Tax-Deductible Contributions
Self-employed retirement plan deductions are one of the most generous tax breaks available, allowing you to defer taxes on large sums while saving for the future. In 2024, a Solo 401(k) allows contributions of up to $69,000 (or $76,500 if age 50 or older) as both employee elective deferrals and employer profit-sharing. A SEP IRA is simpler to set up and lets you contribute up to 25% of net self-employment income, up to a $69,000 maximum. These contributions directly reduce your taxable income, often dropping you into a lower bracket, and the funds grow tax-deferred until withdrawal.
- With a Solo 401(k), you can make both salary deferrals (up to $23,000, or $30,500 if 50+) and an employer contribution of up to 25% of compensation, giving you higher limits than a SEP IRA for lower incomes.
- SEP IRAs require no annual filing and are ideal for freelancers with variable income, as contributions can be adjusted each year to suit your cash flow.
- You have until the tax filing deadline plus extensions to make and deduct contributions for the prior year, so you can calculate your exact tax savings before committing funds.
Choosing the right self-employed retirement plan deduction not only secures your future but also delivers immediate tax savings that can be reinvested into your business.