Retirement Savings for the Self-Employed: SEP-IRA, Solo 401k, and RRSP Options

Employment has one major financial advantage that nobody talks about until it's gone: the automatic retirement contribution. You don't have to think about it. The money moves before you ever see it. When you leave a job and go self-employed, that infrastructure disappears and you're left holding the responsibility yourself. If you need a baseline, start with our map out your monthly needs.

Most freelancers handle this the same way. They mean to set something aside. Some months they do. Most months something else comes up. After a few years of good income, they look at their retirement balance and realize they're behind in a way that's hard to explain to their future self.

The accounts designed for self-employed people are genuinely good. The contribution limits are often higher than employer plans. The tax advantages are the same or better. The problem isn't the vehicles themselves. It's that nobody sits you down and explains which one to use, how it fits variable income, and what happens when you have a bad year.

This is that explanation.

Why Self-Employed Retirement Accounts Are Actually Better (in One Way)

Before getting into specifics: one thing self-employed retirement accounts do better than most employer plans is flexibility. A regular employee's 401(k) has a fixed contribution schedule tied to their paycheck. You contribute a percentage of each paycheck, your employer matches some amount, and that's it.

Self-employed accounts let you contribute at any time, in any amount, up to the annual limit. In a strong income year, you can max out. In a genuinely bad year, you can contribute nothing with zero penalty. This makes them well-suited to income that doesn't arrive on a predictable schedule.

The downside is that they require active decisions. Nothing is automatic unless you make it automatic. But the flexibility is real and it matters.

The US Accounts: SEP-IRA and Solo 401(k)

SEP-IRA (Simplified Employee Pension)

The SEP-IRA is the simplest self-employed retirement account available to US freelancers. You open one at any brokerage, contribute when you want, and deduct contributions from your income. That's essentially the whole thing.

How much you can contribute: Up to 25% of your net self-employment income, to a maximum of $69,000 in 2024 (adjusted annually for inflation). Net self-employment income is your profit after the deduction for half of self-employment tax — your brokerage or accountant can give you the precise calculation, but it works out to roughly 20% of your gross self-employment income as a practical rule of thumb.

The tax benefit: Contributions are deductible. A $10,000 SEP-IRA contribution reduces your taxable income by $10,000, which means the government is essentially subsidizing part of your retirement savings at your marginal tax rate.

Deadline: You have until your tax filing deadline (including extensions) to make contributions for the prior year. So you can wait until April 15 — or October 15 if you file an extension — to contribute for the prior calendar year. This is useful when you don't know your final income until year-end.

The main limitation: If you hire employees at some point, you have to contribute the same percentage to their SEP-IRAs as you contribute to your own. This can make a SEP-IRA expensive to maintain once you have staff. For a solo operation, it's a non-issue.

Solo 401(k) (also called Individual 401k or Self-Employed 401k)

The Solo 401(k) is for self-employed people with no employees (a spouse is the one exception — a spouse who works in the business can be included). It's more complex to set up than a SEP-IRA but allows higher contributions at lower income levels and has features — like Roth contributions and participant loans — that SEP-IRAs don't offer.

How contributions work: You contribute in two capacities simultaneously. As the "employee," you can contribute up to $23,000 in 2024 ($30,500 if you're 50 or older). As the "employer," you can contribute an additional 25% of your net self-employment income. The combined limit is $69,000 in 2024.

Here's why this matters for lower incomes: if your net self-employment income is $50,000, a SEP-IRA limits you to roughly $10,000 in contributions. A Solo 401(k) lets you contribute up to $23,000 from the "employee" side alone — more than double the SEP-IRA ceiling at the same income level.

Roth option: Solo 401(k) plans can include a Roth component, where employee contributions are made with after-tax dollars and grow tax-free. This is particularly valuable early in your career when your income and tax rate are lower than they will be at retirement.

Deadline for setup: Unlike a SEP-IRA, you have to establish a Solo 401(k) by December 31 of the tax year you want contributions to count for. You can't open one in April and apply it retroactively. Set it up before year-end if you're planning to contribute.

Which US Account Should You Choose?

The honest answer for most solo freelancers: if your net income is under $100,000, the Solo 401(k) will typically let you contribute more. Above $200,000, the math often tilts toward a SEP-IRA. In the middle range, run the numbers with your accountant — or just pick a Solo 401(k) if you're operating without employees and want the Roth option.

The Canadian Account: RRSP

For self-employed Canadians, the Registered Retirement Savings Plan (RRSP) is the primary retirement vehicle. Unlike US accounts where the self-employed have specialized plans, RRSPs are the same account used by employees and business owners alike. The mechanics are simpler; the contribution rules are worth understanding clearly.

Contribution room: Each year, you earn contribution room equal to 18% of your prior year's earned income, up to the annual maximum (approximately $31,560 for 2024). Self-employment income counts as earned income, so your freelance or business profit builds RRSP room exactly like a salary would.

Unused room carries forward: This is one of the most useful features of RRSPs for freelancers with variable income. If you have a slow year and can't contribute much, that unused room doesn't disappear. It accumulates indefinitely. After a strong year, you can make a larger lump-sum contribution to catch up.

The tax deduction: RRSP contributions reduce your taxable income dollar-for-dollar. If you're in a 40% combined marginal tax bracket and contribute $10,000 to your RRSP, your tax bill drops by roughly $4,000. The government is subsidizing your retirement savings at your marginal rate.

Strategic timing: Because you choose when to claim the deduction (you can contribute now and claim the deduction in a future year), RRSPs allow some income smoothing. In a banner income year, contribute aggressively and claim the deduction against your peak-rate income. In a lean year, you don't have to contribute if cash flow is tight.

Deadline: The RRSP contribution deadline for a given tax year is 60 days into the following year — typically March 1 (or the next business day). This is different from the US accounts and catches some Canadians off guard at year-end.

TFSA: The Second Account Worth Knowing About

The Tax-Free Savings Account (TFSA) is not a retirement account specifically, but it's a powerful complement to an RRSP for self-employed Canadians. Contributions are not tax-deductible upfront, but growth and withdrawals are completely tax-free.

The annual TFSA contribution limit is $7,000 in 2024. Like RRSP room, unused TFSA room carries forward. Canadians who have been eligible since the TFSA was introduced in 2009 and never contributed may have $95,000 or more in available room as of 2024.

For a freelancer, the TFSA is useful for money you might need before retirement — emergency reserves, business capital, or shorter-term savings goals — that you still want to grow tax-free. The ability to withdraw without triggering income tax (and without reducing future contribution room in the same way an RRSP redemption would) makes it more flexible than an RRSP for funds you might need access to.

How to Actually Make Contributions Work on Irregular Income

The accounts exist. The tax advantages are real. But "contribute to retirement" competes with rent, equipment, slow months, and the general uncertainty of freelance cash flow. Here's a framework that works with variable income rather than against it.

Set a percentage, not a dollar amount

Decide that X% of every client payment goes to retirement. Not a fixed monthly dollar amount — a percentage of what actually comes in. This way, in a $3,000 month, your contribution is modest. In an $11,000 month, it's meaningful. The percentage stays constant; the amount adjusts automatically with your income.

A reasonable target for most freelancers is 10-15% of gross income allocated to retirement. If that feels impossible right now, start at 5% and raise it 1-2% annually until you reach your target.

Treat contribution decisions like tax decisions

You already know (or should know) to set aside a portion of each payment for taxes. Add retirement to the same calculation. When a payment arrives, immediately allocate it: taxes first, retirement second, operating expenses third, pay yourself last. Do this before you spend anything.

Use year-end catch-ups strategically

Both US and Canadian accounts allow you to make lump-sum contributions. If you have a strong Q4, make a larger contribution before your account setup deadline (Solo 401k) or filing deadline (SEP-IRA, RRSP). Year-end catch-ups let you undershoot during the year and top up when you know your annual income.

Automate whatever you can

Most brokerages allow recurring transfers into investment accounts. If your income is variable but you have a baseline month where income is reliably at least X, set up a recurring transfer of a conservative amount — say 7% of your minimum expected monthly income. In strong months, add a manual top-up. The automation ensures you're never at $0 contribution even in your most distracted months.

What Happens to Retirement Savings in a Bad Year

This is the question most retirement guides don't answer, because they're written for people with stable employment. The practical answer for self-employed people: nothing bad happens if you contribute less or nothing at all.

There are no penalties for low contributions. Your account stays open. Whatever is in it keeps growing. In the US, unused contribution room does not carry forward for SEP-IRAs or Solo 401(k)s — you lose the opportunity for that year. In Canada, unused RRSP room accumulates indefinitely.

A bad income year is not a retirement emergency. It's a reason to prioritize cash flow now and make up the gap in the next strong year. The worst thing you can do is withdraw from retirement accounts to cover operating expenses — the taxes and penalties make that an extremely expensive decision. If cash flow is truly tight, look at a business line of credit or emergency fund before touching retirement savings.

The One Thing to Do This Week

If you're self-employed and have no retirement account open yet, open one this week. A SEP-IRA at Fidelity, Schwab, or Vanguard takes about 20 minutes online. You don't have to fund it immediately. But the account needs to exist before you can contribute, and the deadlines can sneak up faster than expected.

If you already have an account and just haven't been contributing consistently: calculate 10% of your last three months of net income. That's roughly what you should have contributed. Transfer whatever you can afford toward that number this month. Then set up the percentage-based system going forward so next quarter looks different.