Being self-employed comes with incredible freedom and flexibility, but it also means taking full
responsibility for your financial future—especially when it comes to retirement. Without access
to employer-sponsored plans like 401(k)s or pensions, you must create and manage your own
retirement strategy.
The good news? This autonomy gives you the chance to design a plan that aligns perfectly with
your goals, income, and business structure. By understanding options like SEP IRAs, Solo
401(k)s, and Traditional IRAs, you can make informed choices to maximize your savings while
minimizing taxes. At Insogna CPA, a leading Austin TX accounting firm, we specialize in
helping self-employed professionals like you navigate these decisions with clarity and
confidence.
Retirement Options for Self-Employed Professionals
Let’s break down three of the most popular retirement savings options available to self-
employed individuals: SEP IRAs, Solo 401(k)s, and Traditional IRAs.
SEP IRAs: Simplicity with High
Contribution Limits
A Simplified Employee Pension (SEP) IRA is an excellent choice for self-employed
professionals and small business owners looking for a straightforward way to save.
How it Works
With a SEP IRA, you can contribute up to 25% of your net earnings (up to $66,000 in 2023).
Contributions are flexible and tax-deductible, which means you can lower your taxable income
while investing in your future.
Ideal for LLCs and S-Corps
● If you operate as an LLC, your contributions are based on self-employment income after
deducting half of your self-employment taxes.
● S-Corp owners can make employer contributions through the business, reducing taxable
income at the corporate level.
Considerations
● Contributions must be uniform for all eligible employees. If your LLC or S-Corp has staff,
you’ll need to match the same percentage of their salaries as you contribute for yourself.
● SEP IRAs don’t allow catch-up contributions for those over 50, which may limit savings
potential for older professionals.
Insogna CPA, a trusted tax accountant in Austin, can help ensure you’re making the most of
this plan’s flexibility while staying compliant with IRS regulations.
Solo 401(k): Maximum Savings Potential
The Solo 401(k) is tailored for self-employed individuals with no full-time employees (apart from
a spouse). This plan offers the highest contribution limits, making it ideal for high earners.
How it Works
Solo 401(k)s allow you to contribute both as an employee and as an employer:
● Up to $22,500 as an employee in 2023 (plus $7,500 in catch-up contributions if you’re
over 50).
● Employer contributions of up to 25% of your compensation, with total contributions
capped at $66,000 (or $73,500 with catch-up).
Key Advantages
● Roth Option: Many Solo 401(k)s allow Roth contributions, enabling you to invest after-
tax dollars for tax-free withdrawals in retirement.
● Loan Provisions: Unlike SEP IRAs, Solo 401(k)s often allow you to borrow against your
account balance, providing a financial safety net.
Best Fit for LLCs and S-Corps
● LLC owners calculate contributions based on net self-employment income after
deducting half of their self-employment tax.
● S-Corp owners use W-2 wages to determine contributions, combining employee
deferrals and employer contributions for tax efficiency.
Considerations
● Solo 401(k)s involve more paperwork and may require filing Form 5500 if assets exceed
$250,000.
● Hiring employees disqualifies you from the Solo 401(k), requiring a transition to a
traditional 401(k).
Whether you’re looking for a CPA firm in Austin Texas or need expert advice on Solo 401(k)
plans, Insogna CPA offers personalized support to help you make the right decisions.
Traditional IRAs: Accessibility and Versatility
A Traditional IRA is a straightforward and widely available retirement option, offering tax-
deferred growth on your investments.
How it Works
You can contribute up to $6,500 annually ($7,500 if over 50) in 2023. Contributions may be tax-
deductible depending on your income and participation in other retirement plans.
Advantages
● Universal Eligibility: Traditional IRAs are available regardless of your business
structure, making them accessible to both LLC and S-Corp owners.
● Ease of Use: Traditional IRAs require minimal administrative effort, making them ideal
for those seeking simplicity.
Considerations
● Lower contribution limits may not be sufficient for high-income earners.
● Deductibility phases out at higher income levels if you’re covered by another retirement
plan.
Our Austin accounting firm provides expert guidance to help you integrate Traditional IRAs
into a broader retirement strategy.
Choosing the Right Plan for Your Needs
How do you decide which plan is best for you? It depends on your income, business structure,
and financial goals. Here’s a quick guide:
● High Earners with Fluctuating Income: A SEP IRA provides flexibility to adjust
contributions based on cash flow.
● Maximizing Savings: Solo 401(k)s offer the highest contribution limits, ideal for
consistent and high earners.
● Simplicity: A Traditional IRA is perfect for those who value ease of setup and
maintenance.
● Tax Diversification: Opt for a Solo 401(k) with a Roth option to balance current tax
deductions with future tax-free withdrawals.
Integrating Retirement Planning with Business Structure
LLC Owners
Contributions are calculated based on net self-employment income. Pairing a SEP IRA or Solo
401(k) with your LLC can help you optimize both personal and business tax strategies.
S-Corp Owners
S-Corp owners can use W-2 wages to strategically structure Solo 401(k) or SEP IRA
contributions, minimizing corporate profits and self-employment taxes while maximizing
retirement savings.
As one of the top accounting firms in Texas, Insogna CPA can guide you in integrating
retirement plans with your specific business structure.
Secure Your Future with Insogna CPA
Planning for retirement as a self-employed professional can feel overwhelming, but you don’t
have to navigate it alone. At Insogna CPA, one of the best CPA firms in Austin, we make
complex financial decisions simple and empowering.
Whether you’re choosing a SEP IRA, Solo 401(k), or Traditional IRA, our expert team offers
tailored accounting services in Austin to help you maximize savings and minimize taxes.
Ready to take the first step toward securing your financial future? Contact Insogna CPA
today for a consultation and discover how our trusted Austin TX CPAs can help you
achieve your goals.