As a contract writer, I don't have access to a company-sponsored 401(k) plan to contribute to, or a pension to count on down the road. And as more people count on the "gig economy," or contract work, as their primary job, a growing number of Americans will find the onus completely on their own shoulders to save for retirement. And that can be scary. But here's some really good news: It doesn't need to be.

It's much easier to set up a retirement account with an online broker than you might think. Depending on how much you earn and how much you plan to contribute to your retirement each year, you may have several great options to choose from. 

Notebook with retirement savings plan printed on the cover sits on a tabletop.

Image source: Getty Images.

Here's a closer look at the three best options to save for retirement if you're self-employed. The fact is, this is one event that gets sharply harder and more expensive to prepare for the longer you put it off. 

Roth IRA

The Roth IRA is the simplest way for many self-employed people to put money toward retirement, and it's offered by just about every online broker.

This individual retirement arrangement offers several powerful tax benefits that make it a no-brainer for many retirement savers. To start, you can contribute up to $5,500 per year in 2018 to a Roth -- plus an extra $1,000 if you're 50 or older.

The best aspect of a Roth is that you won't have to ever pay taxes on your gains. You don't even have to pay taxes when you take distributions in retirement. This "tax-free forever" aspect of the Roth makes it a wonderful hedge against future tax increases, helping stretch your nest egg further in retirement. 

However, there are income limits that could affect whether a Roth is right for you: 

For this filing status

Contributions are reduced if income is above this amount

Contributions are not available if income exceeds this amount

Single, head of household, or married filing separately IF you didn't live with your spouse during the year



Married filing jointly or qualifying widow or widower



Married filing separately IF you lived with your spouse at any point during the year



Data source: Internal Revenue Service.

If you earn too much money to make Roth contributions, or if you want to contribute more than the maximum allowed, one of the two options below could be a better choice. 

Self-employed 401(k)

This is an option many people don't even know exists, but it's a great way to go (and how I personally save for retirement). 

To start, it offers higher contribution limits, with no caps based on your income (though your employer contributions cannot exceed your earnings). In 2018, that's $18,500 in employee contributions; however, you can also make employer contributions, bringing the total that can be contributed to a 401(k) in 2018 to $55,000. Note that the employer contribution cannot exceed 25% of your total compensation. 

Add in an extra $6,000 contribution if you're 50 and above, and you could put as much as $61,000 in a self-employed 401(k) plan, versus the $6,500 cap on a Roth. 

Older couple wearing work clothes.

Self-employed doesn't have to mean you have to work forever. Image source: Getty Images.

There are differences in tax treatment. Like a Roth, once you make your contribution, any assets inside your 401(k) grow tax-free. But unlike a Roth, distributions in retirement are considered regular income and taxable at whatever your tax rate is at that time. In other words, this is a tax deferred account. 

However, you gain an extra tax benefit: Employee contributions are considered pre-tax income the year you make them, cutting your tax bill now. This is especially valuable for high-income earners who expect to fall into a lower tax bracket in retirement, because the value of a lower tax bill today is worth more than it would be when your tax rate falls in retirement. Furthermore, you can take a deduction for any employer contributions you make, too. 

Some 401(k) plans offer a Roth option for employee contributions. If you choose a plan that offers this, remember that your employee contributions would be eligible for the same tax benefits as a Roth IRA, though at the higher 401(k) contribution limits. 

Pay close attention when choosing a self-employed 401(k), and avoid any that charge annual fees and/or offer very limited investment choices. Several online brokers offer self-employed 401(k) plans with the same costs and ability to buy and sell the same investments as any other retirement account. 


The SEP IRA may share a similar-sounding name with the Roth or traditional IRA, but it's far more similar to a 401(k) in terms of contribution limits and tax benefits. The contribution limits in 2018 are $55,000, with total contributions capped at 25% of your earnings. 

Tax treatment is essentially the same as the self-employed 401(k). Contributions can be treated as a deduction the year they are made, lowering your tax bill today, while savings grow tax-free. When you start taking distributions in retirement, they are considered regular income and taxed at your marginal tax bracket that year. 

While the SEP IRA is listed after the self-employed 401(k) in this article, it offers almost identical benefits -- unless you intend to contribute more than 25% of your compensation (within the maximum limits) to your retirement savings. Furthermore, the SEP IRA is also more widely available, so your preferred online broker may offer it, and not the self-employed 401(k). If that's your situation, the SEP IRA is an excellent choice.