Retirement Plans for Self-Employed People With or Without Employees

No retirement plan is best for every self-employed person. An owner working alone may compare a one-participant 401(k) with a SEP, while an owner with eligible employees must account for coverage, employer contributions, notices, and administration. A SIMPLE IRA, SEP, or conventional 401(k) may warrant review depending on the business and its workforce.

Which retirement plans can a self-employed person consider?

The IRS overview of retirement plans for self-employed people describes SEPs, 401(k)s, SIMPLE IRAs, profit-sharing arrangements, and defined benefit plans. The important first question is not which plan advertises the highest contribution limit. It is whether anyone other than the owner and possibly a spouse works for the business, or could become eligible under the plan's rules. Business structure, earnings, other employer plans, intended employer contributions, and the time available for administration also matter.

This guide compares plan structures, not investments within them. Limits and procedures can change. The IRS and Department of Labor (DOL) pages linked here were accessed September 29, 2026; verify the rules for the year of an actual plan decision with a qualified tax and retirement-plan professional.

How does the comparison change when an owner hires employees?

A one-participant 401(k), often called a solo 401(k), covers an owner with no employees or the owner and spouse. The IRS one-participant 401(k) guidance explains that its exemption from nondiscrimination testing depends on having no common-law employees to test. If employees are hired and meet plan eligibility requirements, they must be included; the plan's deferrals may then require testing unless an exception applies. The name “solo” does not exempt an expanding business from these rules.

An owner with employees should instead compare plans by who must be covered, whether employees may defer from pay, what the employer must contribute, and what notices, filings, or testing may apply. Part-time or seasonal work should not be dismissed without checking the relevant plan document and eligibility rules. An owner-only arrangement may need review before the first employee becomes eligible, not after an annual contribution is calculated.

For an owner without employees, the calculation still depends on earned income and whether deferrals have been made through another employer's 401(k). The IRS says an owner's elective deferral limit applies across plans, not separately to each job. A spouse working in the business can be covered by a one-participant plan; having other eligible employees changes the analysis.

How do the main plans compare for an owner working alone?

One-participant 401(k). An owner can make elective deferrals in an employee capacity and potentially make employer contributions, subject to separate and overall limits. An age-eligible participant may make catch-up contributions under applicable 401(k) rules. The combination can be useful to evaluate when business earnings and contribution goals justify the work of maintaining the plan, but it is not automatically the largest allowable contribution for every owner. The IRS notes that some one-participant plans must file Form 5500-EZ when plan assets meet the applicable filing threshold. See the IRS one-participant 401(k) rules and self-employment calculation rather than using an old flat dollar figure.

SEP. A simplified employee pension is funded by employer contributions to eligible participants' SEP-IRAs. The IRS SEP guidance describes relatively simple setup and flexible year-to-year contributions. A SEP does not provide regular employee salary deferrals or age-based SEP catch-up contributions. An owner calculating a personal SEP contribution uses a special self-employment earnings calculation, not simply a stated percentage of gross receipts or annual net income. SEPs can also cover employees, but their coverage and allocation rules become central once the business hires.

SIMPLE IRA and other options. A SIMPLE IRA can serve an eligible small employer even when the owner is its only worker, but its required employer contribution and employee-notice framework may be a better fit when the business expects to add staff. A traditional IRA is a personal retirement account, not a substitute for deciding how an employer-sponsored plan will cover eligible employees. More complex profit-sharing or defined benefit arrangements also exist; their contribution design and administrative obligations require an individual review, not a general ranking.

Which retirement plans for self-employed owners allow eligible employees to participate?

SEP: An owner can establish a SEP even when the business has employees. Employer contributions are discretionary from year to year, but when the owner contributes, the plan generally must allocate contributions for eligible employees under a uniform formula. The DOL guide to SEP plans for small businesses notes that eligible part-time and seasonal employees cannot simply be left out, and that employees who terminate during a contribution year may still have to receive contributions. SEP contributions are employer-funded, so employee salary deferrals are not part of the ordinary SEP design. Low filing complexity comes with a potentially significant employer-wide contribution cost.

SIMPLE IRA: Under the IRS SIMPLE IRA plan guidance, eligible employees can choose salary-reduction contributions, while the employer must make a matching or nonelective contribution under the plan rules. The plan is generally for employers with 100 or fewer employees who do not maintain another retirement plan, subject to specific exceptions and requirements. Its setup and filing can be simpler than a conventional 401(k), but the required employer contribution, annual notices, employee election periods, and generally lower deferral limits may not fit every business. The IRS provides different eligibility and contribution rules for SIMPLE IRAs than for SEPs; do not apply one plan's test to the other.

Conventional 401(k): Once eligible non-spouse employees join, the arrangement is no longer analyzed as a one-participant plan. A conventional 401(k) can offer employee deferrals and employer contribution design, but participant eligibility, nondiscrimination rules, reporting, and administration need attention. Certain plan designs can change testing requirements. Employee growth, other plans, payroll processes, and service-provider costs all affect the comparison. The IRS discussion of what changes when a solo 401(k) hires employees is a useful starting point.

Profit-sharing plan: The IRS profit-sharing plan guidance describes discretionary employer contributions allocated under a plan formula. It also identifies annual Form 5500 reporting, participant disclosures, and nondiscrimination testing as considerations. A plan that adds a salary-deferral feature is a 401(k), not a second way to make owner-only deferrals. Contribution flexibility needs to be weighed against those ongoing obligations.

What should an owner check before choosing or changing a plan?

First, identify every person working for the business and check the written eligibility terms. The IRS SEP participation rules permit specified age, service, and minimum-compensation conditions, but a plan may use less restrictive terms. The IRS SIMPLE IRA participation rules use a different compensation-based test and permit less restrictive, but not more restrictive, terms. The details can affect who receives a contribution even if an employee is part-time or leaves before the end of the year. Related businesses and leased employees can add questions requiring professional review.

Second, map the intended contribution across the whole workforce. A SEP's uniform employer-contribution approach may be easier to run, but funding eligible workers as well as the owner can change the cost. A SIMPLE IRA provides employee deferrals but commits the employer to an annual contribution method. A conventional 401(k) may offer more design choices alongside more administration. A profit-sharing plan permits discretionary employer funding but requires an allocation formula. None of these descriptions predicts the amount an owner can deduct or an employee will receive.

Third, check the calendar and ongoing duties. The IRS SEP instructions permit setup as late as the business tax-return due date, including extensions, for the year involved. The IRS SIMPLE IRA setup instructions generally use a January-through-October effective-date window, with exceptions for new employers and special rules for existing plans. Those are not interchangeable deadlines. Employee notices, contribution deposits, plan amendments, and filing requirements also differ. Confirm the current year's deadlines and limits before acting.

Finally, connect the retirement plan to broader planning for business owners and any business exit strategy. A change in staffing, ownership, income, or the timing of a sale may affect whether the existing plan design remains appropriate. Coordinating these decisions may involve a tax professional and a plan administrator; individual tax treatment and plan obligations depend on the business and its employees.

There is no universal answer to which plan is “best.” For an educational discussion of retirement planning alongside workforce and transition questions, see /start-the-conversation/.