SEP-IRA (Simplified Employee Pension)
A SEP-IRA is a tax-deferred retirement account for self-employed individuals and small business owners. Contribution limits are far higher than a traditional IRA — up to 25% of net self-employment income, capped at $70,000 in 2025.
Freelancer earning $120,000 net can contribute up to $30,000 to a SEP-IRA in 2025, reducing taxable income by the same amount.
SEP-IRAs are one of the best retirement tools for sole proprietors and freelancers because of the high contribution limit. Unlike a 401(k), there is no Roth option and no employee contribution — only employer contributions (made by the business owner on behalf of themselves).
Contributions are tax-deductible as a business expense, reducing both income tax and self-employment tax. Investments grow tax-deferred; withdrawals in retirement are taxed as ordinary income (same as traditional IRA).
Setup is simple — no annual filing with the IRS (unlike a 401(k)), and you can open one as late as the tax filing deadline (including extensions) for the prior tax year.
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- Traditional IRA
- A traditional IRA (Individual Retirement Account) is a tax-deferred retirement account. Contributions may be tax-deductible (depending on income and whether you have a workplace plan), and withdrawals in retirement are taxed as ordinary income.
- Roth IRA
- A Roth IRA is a US individual retirement account funded with after-tax dollars. Investments grow tax-free, and qualified withdrawals in retirement are completely tax-free.
- 401(k)
- A 401(k) is a US employer-sponsored retirement savings account. Contributions are pre-tax (traditional) or post-tax (Roth), grow tax-deferred or tax-free, and benefit from compound growth over decades.
- 1099 Form
- A 1099 is an IRS information return reporting income you received outside of regular employment — such as freelance income, dividends, interest, or retirement distributions. Unlike a W-2, no taxes are withheld from 1099 income, so recipients must pay taxes themselves.