Where to Start Investing (Part 4)

Last week, we looked at how to invest outside employer plans with IRAs and brokerage accounts. Those tools work for anyone, whether or not they have access to a retirement plan at work.

But what if you are the employer? Many business owners, freelancers, and contractors don’t have access to 401(k)s or pensions through a company — but that doesn’t mean they’re left out. In fact, self-employed individuals often have some of the most powerful retirement options available, with higher contribution limits and unique tax benefits.

This week, we’ll explore the two most common retirement accounts for the self-employed: the SEP IRA and the Solo 401(k). Both allow you to save aggressively, reduce taxes, and build long-term wealth — all while keeping flexibility for your business.

💡 This Week’s Focus: Retirement Accounts for Business Owners
When you work for yourself, you’re responsible for both your income today and your financial future tomorrow. The good news is — you don’t have to miss out on retirement savings. In fact, the self-employed often have access to plans that allow larger contributions and bigger tax breaks than many traditional employees.

SEP IRAs and Solo 401(k)s are two of the best tools for building retirement wealth as a business owner or freelancer. They combine flexibility, tax advantages, and higher contribution limits — giving you the power to design a plan that fits your goals and your business income.

Whether your income is steady or seasonal, these accounts let you contribute more in profitable years and scale back when cash flow is tighter — all while keeping your savings growing steadily for the future.

📖 Verse of the Week
“Know well the condition of your flocks, and give attention to your herds, for riches do not last forever.” — Proverbs 27:23–24 (ESV)

Wise business owners pay attention to both today’s needs and tomorrow’s security. Retirement accounts are one way to steward your income faithfully for the future.

Retirement Options for the Self-Employed

1. SEP IRA (Simplified Employee Pension)
A SEP IRA is one of the simplest and most flexible retirement accounts for small business owners, contractors, and freelancers. It’s easy to open, gives you a large contribution limit, and helps lower your taxes while saving for the future.

• Easy to set up through major brokerages like Fidelity, Vanguard, or Schwab — no special paperwork or annual filing required.

• Contributions are tax-deductible, reducing your taxable income for the year.

• Annual contribution limit (2025): up to 25% of your net self-employment income, capped at $69,000.

• Flexible: you decide each year how much to contribute — great for variable income.

• If you have employees, you must contribute the same percentage for them as you do for yourself.

• Withdrawals in retirement are taxed as regular income. Early withdrawals before age 59½ typically face taxes and a 10% penalty.

📌 Example: Anna is a self-employed consultant earning $100,000. She can contribute up to $25,000 (25%) to her SEP IRA, deducting that amount from her taxable income and saving for retirement at the same time.

2. Solo 401(k) (One-Participant 401(k))
A Solo 401(k) is like a traditional workplace 401(k), but made specifically for self-employed individuals — and their spouses if they also work in the business. It’s ideal for freelancers, consultants, and small business owners with no employees (other than a spouse).

• Higher contribution potential because you wear two hats — both employee and employer.

• As the employee, you can contribute up to $23,500 in 2025 (plus a $7,500 catch-up if you’re 50 or older).

• As the employer, you can contribute up to 25 % of net self-employment income, with a combined total cap of $69,000 (or $76,500 with catch-up).

• Contributions can be Traditional (pre-tax) or Roth (after-tax) if your provider offers that option — giving you control over when you pay taxes.

• Requires a bit more setup than a SEP IRA (paperwork, plan documents, and potentially IRS filings once balances exceed $250,000).

• Offers more flexibility and higher limits than most other retirement options for the self-employed.

• Withdrawals in retirement are taxed if Traditional; tax-free if Roth (and the rules are met).

📌 Example: James runs a small graphic design business and earns $80,000. He contributes $20,000 as an “employee” and $20,000 as “employer,” putting away $40,000 total into his Solo 401(k). This significantly reduces his taxable income while building strong retirement savings.

Which One Should You Choose?

• SEP IRA → Easier to set up, best if you want simplicity or if you have employees.

• Solo 401(k) → Requires a little more setup but allows higher contributions and, in many cases, Roth options. Best if you’re a one-person business and want to maximize savings.

👉 Do You Need Professional Help?

• SEP IRAs are very simple — most people can open one directly online at Fidelity, Vanguard, or Schwab without an advisor. The paperwork is minimal, and contributions are straightforward.

• Solo 401(k)s are a bit more involved — they require plan documents, some extra setup, and sometimes IRS filings if your balance exceeds $250,000. Most major brokerages still make the process easy online, but this is where a CPA or financial advisor can be helpful, especially if your income fluctuates or you want to ensure contributions are calculated correctly.

🎯 Weekly Challenge
If you’re self-employed, take time this week to explore which retirement option fits your situation best:

• If you want something simple and flexible, start with a SEP IRA.

• If you want to maximize contributions and possibly include a Roth option, explore a Solo 401(k).

💬 Reflection Questions

1. Am I currently saving for retirement as a self-employed individual?

2. Would the simplicity of a SEP IRA or the higher limits of a Solo 401(k) better fit my goals?

3. Do I need to speak with a tax professional to understand how contributions will affect my taxable income?

📢 What’s Coming Next
Next week, we’ll wrap up our Where to Start Investing series with a lesson on Long-Term Success: Patience, Discipline & Adjustments — how to stay steady through market ups and downs, rebalance your portfolio over time, and build lasting wealth through consistency and faith.

Stay faithful. Stay focused. The journey doesn’t end once you start investing — that’s where it truly begins.

🔁 New here or missed a few? Catch up on past newsletters at financebyfaith.beehiiv.com
Blessings and financial peace to you!