Retirement Planning for Freelancers: 2026 Limits and Math

Retirement planning for freelancers starts with one decision: which account to open, then how much of your profit it can shelter. For most US sole proprietors the choice is a SEP-IRA or a solo 401(k), with a traditional or Roth IRA on top. The SEP-IRA is simpler to run. The solo 401(k) usually lets you put away more at the same income, and the gap is widest at lower and middle incomes. This guide uses the IRS's 2026 figures and the self-employed worksheet from IRS Publication 560 to work the numbers for two freelancers. It also covers the step most guides skip: setting rates and handling invoice payments so the money is there when the contribution is due.

Last reviewed: October 27, 2026. Figures are US federal limits for tax year 2026 from IRS.gov, accessed on that date. State tax treatment, S corporation owners, partnerships and non-US plans are not covered. This is general information, not tax, legal or investment advice. It does not recommend any investment or provider; confirm your own figures with a tax professional or the IRS.

Which retirement accounts can a freelancer open in 2026?

Five accounts come up for self-employed people. The table shows the 2026 limits from the IRS and what each one costs you in paperwork and flexibility.

Sources: IR-2025-111 for the 401(k), IRA, SIMPLE and Roth figures; the IRS COLA table for the $72,000 overall limit; Publication 560 for SEP and 401(k) rules; the IRS one-participant 401(k) page for Form 5500-EZ; Publication 969 for HSAs. The IRS also keeps an overview of retirement plans for small businesses.

The old version of this table quoted 2025 limits ($7,000 IRA, $70,000 SEP). Those are out of date for 2026.

How much can a sole proprietor actually contribute?

Less than the headline. Articles often say a SEP allows "25% of compensation", but that rate applies to employees' wages. For your own account as a sole proprietor, Publication 560 makes you reduce the rate, because your contribution and your net earnings depend on each other. A 25% plan rate becomes 20% of a smaller base.

The base is your net profit minus the deductible half of self-employment tax. Self-employment tax is 15.3% on 92.35% of net profit, up to the Social Security wage base (Topic 554). The 2026 wage base is $184,500.

1. Take net profit from Schedule C.
2. Self-employment tax = net profit × 92.35% × 15.3%. Halve it.
3. Net earnings = net profit − half of self-employment tax.
4. SEP-IRA maximum = 20% of net earnings, capped at $72,000.
5. Solo 401(k) maximum = up to $24,500 of employee deferrals, plus the same 20% employer contribution. The combined total can't exceed $72,000 (catch-up excluded) or your net earnings.

The IRS worksheet has one more limit that matters at low incomes. The employer contribution can't exceed half of (net earnings − deferrals). That stops the total going above what you earned.

Worked example: what $30,000 and $72,000 of profit allow

Two hypothetical freelancers, both under 50, both sole proprietors with no employees, tax year 2026. Sam earns $30,000 net profit from part-time bookkeeping. Priya earns $72,000 net profit as a UX designer.

Three things stand out:

• At $30,000, the solo 401(k) allows almost five times the SEP. Sam could shelter about $26,190, but that is nearly all of his net earnings. It is only realistic if a partner's income covers the household's bills.
• At $72,000, the solo 401(k) allows $24,500 more than the SEP, which is exactly the employee deferral.
• Neither of them gets near $72,000. At 20%, a SEP only reaches the cap when net earnings hit $360,000, which is also the 2026 compensation limit.

Why don't retirement contributions reduce self-employment tax?

Because the deduction is taken in the wrong place for it. Publication 560 says sole proprietors deduct contributions for themselves on Schedule 1 (Form 1040), line 16, and "can't deduct as a business expense" contributions made for themselves. Self-employment tax is figured on Schedule C profit, before that deduction.

For Priya, a $13,382.67 SEP contribution lowers taxable income by $13,382.67. Her self-employment tax stays at $10,173.28. That matters for pricing: whatever you contribute, the self-employment tax on the income that funds it is still due. Our self-employment tax guide explains the tax itself, and quarterly tax payments covers how to pay it during the year.

How do you set rates that fund a retirement contribution?

Work backwards from the contribution. Say Priya wants to put $12,000 a year into her SEP-IRA without cutting her take-home pay. Each extra dollar she bills costs about 14.13 cents in self-employment tax (92.35% × 15.3%). So she needs:

Extra billings = $12,000 ÷ (1 − 0.1413) = about $13,975 a year.

• Self-employment tax on $13,975 is about $1,975, leaving about $12,000 to contribute.
• Her new net profit would be about $85,975. That allows a SEP maximum of about $15,980, so $12,000 fits.
• The SEP deduction and the half-SE-tax deduction shelter almost all of the extra income. About $987 stays taxable. That is roughly $118 of federal income tax in the 12% bracket or $217 in the 22% bracket, plus any state tax.

If she bills 1,100 hours a year, $13,975 works out to about $12.70 more per hour. On monthly retainers it is about $1,165 a month across her clients. Our freelance pricing guide covers building a rate from costs, and raising freelance rates covers how to announce the increase to existing clients.

This is arithmetic under stated assumptions. It ignores state income tax, the qualified business income deduction and changes in your bracket. A tax professional can run it with your own numbers.

How do you fund contributions from irregular invoice income?

Tie the transfer to cash received, not to the calendar. Freelance income arrives when clients pay, so a fixed monthly transfer can bounce in a slow month. Two habits work better:

• Move a fixed percentage of every payment. In Priya's case, $12,000 out of about $86,000 of profit is roughly 14%. Each time an invoice is paid, move 14% of the profit share to a savings account earmarked for the contribution. It is easier to start with a percentage of every payment than to find $12,000 in March.
• Use the deadline you have. SEP-IRA contributions for 2026 can be made up to your return's due date, including extensions, which is October 15, 2027 if you extend. Payments on invoices you send in December and January can fund the prior year's SEP. Solo 401(k) employee deferrals are different: they depend on an election and on your provider's cutoffs, so check before you rely on January cash.

Late payers break both habits. Net 30 payment terms and when to send an invoice cover the timing side. The invoice field checklist helps you avoid invoices bounced back by a client's accounts payable team, and how to handle unpaid invoices covers follow-up.

What InvoiceQuickly does and doesn't do here

InvoiceQuickly is invoicing software, not a retirement or tax tool. It doesn't calculate contributions, connect to a brokerage or move money. What it can do:

• On every plan, record full or partial payments (bank transfer, card, cash, check or other) and see the remaining balance. The dashboard shows all-time totals for payments received and amounts outstanding, kept separate per currency. It has no date-range reports, so for a yearly figure you add up payments yourself.
• On Pro ($9/month), send invoices by email, schedule payment reminders before and after the due date, and set up recurring invoices for retainer clients. Recurring invoices are created as drafts for review, or sent automatically. Pro also exports invoices to CSV for your bookkeeper. The export has no amount-paid column, so it doesn't replace your payment records.

The free freelance invoice template is a reference layout if you'd rather not sign up. If you are comparing that with software, the cost of manual invoice processing helps you weigh the time each option takes.

When is each plan the wrong choice?

Each plan has a situation where it works against you:

• A solo 401(k) stops fitting the day you hire. It is meant for an owner with no employees, or an owner and spouse. Before you take on a first employee, read hiring your first employee and talk to your plan provider.
• A SEP-IRA gets expensive once you have employees. Anyone who is 21 or older, has worked for you in 3 of the last 5 years and earned at least $800 in 2026 must receive the same contribution percentage you give yourself (IRS SEP page).
• If you also have a day-job 401(k), the $24,500 deferral limit is shared. The IRS says deferral limits apply per person, not per plan. If you defer $24,500 at work, your solo 401(k) can only take the employer contribution.
• If you can't spare the cash, a big contribution is a liquidity risk. Withdrawals before age 59½ generally owe a 10% additional tax plus income tax, with listed exceptions (Topic 557). Keep a tax reserve and some working capital first. Our cash flow guide covers sizing a buffer.
• If your income is low and uneven, the admin may not pay off. For Sam, an IRA's $7,500 limit may be all he can fund, and an IRA needs no plan document.

Where do IRAs fit alongside a self-employed plan?

An IRA has its own $7,500 limit for 2026 ($8,600 at 50 or older), separate from a SEP or solo 401(k). Two income rules apply:

• Roth IRA: direct contributions phase out between $153,000 and $168,000 of modified AGI for single filers, and between $242,000 and $252,000 for joint filers (2026).
• Traditional IRA deduction: if you are covered by a workplace retirement plan, the deduction phases out between $81,000 and $91,000 (single) or $129,000 and $149,000 (joint) for 2026. Taking part in your own SEP or solo 401(k) may count as coverage. Check Publication 590-A or ask a tax professional before you claim the deduction.

Traditional versus Roth is a bet on your future tax rate, and this article doesn't pick one for you.

Frequently asked questions

What is the deadline to open and fund a SEP-IRA for 2026?

You can set up a SEP-IRA for 2026 and make the contribution up to your federal return's due date, including extensions. For most sole proprietors that is April 15, 2027, or October 15, 2027 with an extension, according to IRS Publication 560 and the IRS SEP page.

Can I open a solo 401(k) after December 31 and still contribute for 2026?

Yes, in one case. Since 2023, a sole proprietor with no employees can adopt a new 401(k) after year-end if it is adopted by the filing deadline without extensions. For that first year, your employee deferrals must be paid into the plan before that same deadline, according to Publication 560.

How much can I put in a solo 401(k) if I also have a 401(k) at my day job?

The $24,500 employee deferral limit for 2026 applies per person across all your plans. If you defer $24,500 at work, your solo 401(k) can only receive the employer contribution of 20% of net self-employment earnings. A side business with $20,000 of profit would allow about $3,717 on that basis.

Do I have to file Form 5500-EZ for a solo 401(k)?

Generally yes, once the plan has $250,000 or more in assets at the end of the year, according to the IRS one-participant 401(k) page. Plans with fewer assets may be exempt from the annual filing.

Do SEP-IRA or solo 401(k) contributions reduce self-employment tax?

No. Sole proprietors deduct contributions for themselves on Schedule 1 (Form 1040), line 16, not as a business expense. Self-employment tax is figured on Schedule C profit before that deduction, so it doesn't change.

Can I take money out of a SEP-IRA or solo 401(k) before 59½?

Generally only with a 10% additional tax on top of income tax. IRS Topic 557 lists exceptions, including disability, certain medical expenses, a first-time home purchase up to $10,000 (for IRAs) and substantially equal periodic payments.

Should a freelancer choose a SEP-IRA or a solo 401(k)?

At the same profit and with no employees, a solo 401(k) allows more: about $37,883 against $13,383 at $72,000 of profit in 2026. A SEP-IRA is simpler to run and doesn't need Form 5500-EZ. If you expect to hire, or want the least admin, the SEP is easier. Your plan provider and a tax professional can confirm which fits.

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Steady deposits make steady contributions possible. Start free with InvoiceQuickly, or compare plans on the pricing page. More guides are on the InvoiceQuickly blog and the tax hub.