Retirement plans for people without an HR department
Self-employment hands you the whole retirement problem. No employer plan, no match, no payroll deduction quietly doing the work. The trade is that the IRS gives you bigger tools, and the simplified employee pension, the SEP IRA, is the simplest of them.
A SEP is an IRA your business funds. You open one at any broker, usually in under an hour, and your business contributes up to 25% of compensation, capped at $72,000 for 2026 under IRS limits. Compare that ceiling to the $7,500 personal IRA limit and you see the point: a good year of freelance income can shelter a serious amount of money.
One honest adjustment before you budget around 25%. If you are self-employed rather than running payroll for yourself, the IRS computes your limit from net self-employment earnings after deducting the contribution itself and part of your self-employment tax, which works out to an effective rate near 20%. The worksheets live in IRS Publication 560. Annoying, but mechanical, and any decent tax software runs it for you.
Why people love the SEP
Three reasons, all legitimate.
It is nearly paperwork-free. No annual federal filing for the plan in the standard setup, no administrator to hire, no plan documents beyond a short form. The IRS built the SEP for businesses without a benefits department, and it shows.
It is flexible year to year. Nothing obligates you to contribute annually. Fat year, contribute the maximum. Lean year, contribute nothing. For income that swings, that flexibility is worth a lot.
The deadline is generous. You can open and fund a SEP for a tax year as late as your filing deadline, extensions included. It is the rare retirement move you can still make after December 31, which makes it the classic answer to a surprise tax bill in April.
The two strings worth reading
First, employees. SEP contributions must be uniform: whatever percentage of compensation you contribute for yourself, you must contribute for every eligible employee. For a true solo operation this string never tightens. The moment you hire, every point of your own contribution rate becomes a payroll cost across the team. Owners with employees should price that before falling in love with the 25%.
Second, no employee deferral and no catch-up. A SEP only takes employer contributions, which means the age-50 catch-up that 401(k) savers get does not exist here, and at lower income levels the SEP’s percentage math caps you well below what a solo 401(k) allows. A freelancer netting $60,000 can put roughly $12,000 into a SEP, while a solo 401(k) would allow the full $24,500 employee deferral plus an employer piece on top.
Translation: high and steady profits favor the SEP’s simplicity. Modest or variable profits usually favor the solo 401(k)‘s structure. Run both numbers before you pick.
Setting it up without overthinking it
Open the account at a major broker, free almost everywhere. Sign the short adoption form. Invest the contributions the same way any sensible retirement account invests: broad, cheap index funds or a target-date fund, nothing clever. The SEP is a tax wrapper, not a strategy.
Remember the SEP stacks with a personal IRA. The $7,500 individual limit for 2026 is separate from the SEP’s employer contribution, so a strong year can fund both, though SEP coverage can affect whether the personal traditional IRA contribution stays deductible at higher incomes. Check the IRS deduction phase-outs before assuming.
Then solve the problem the SEP does not solve: cash flow. Self-employed income arrives in lumps, and the worst outcome is contributing in March and clawing it back in August because a client paid late. Early IRA withdrawals get taxed and generally penalized, so money should only enter the SEP once you know you will not need it.
The fix is a buffer. Keep your tax reserve and three to six months of expenses in a high-yield savings account, where the money earns real interest and stays liquid. Lumpy income lands there first. Whatever clears the buffer becomes the SEP contribution at year-end, sized with your actual numbers in hand. Buffer first, then shelter. That order is what makes self-employed retirement saving survivable.