U.S. retirement plans for self-employed people, including SEP, SIMPLE, one-participant 401(k), profit-sharing, and defined benefit structures.
A self-employed retirement plan is a U.S. tax-advantaged retirement arrangement established by a sole proprietor, partner, independent contractor, or owner-operated business. Common choices include SEP IRAs, SIMPLE IRAs, one-participant 401(k) plans, profit-sharing plans, money purchase plans, and defined benefit plans.
Keogh plan or H.R. 10 plan is an older label for qualified plans covering self-employed people. It is not a separate modern plan category. The Internal Revenue Service says the term is now seldom used because current law generally does not distinguish plans sponsored by incorporated and unincorporated businesses in the old way.
Many employees receive access to a retirement plan through payroll. A self-employed person must usually decide whether to establish a plan, choose its design, arrange contributions, select investments, maintain records, and complete any required filings.
That decision affects both household retirement savings and business finance. A higher contribution can reduce current cash available for taxes, inventory, payroll, debt service, or emergencies. A plan covering employees can also create recurring employer costs and administrative duties. The plan should therefore be evaluated as both a retirement account and a business commitment.
Older bank forms, tax publications, and account statements may call a self-employed qualified plan a Keogh plan. To analyze such an account, identify the underlying design rather than relying on the legacy label:
The IRS retirement plans for self-employed people page provides the current terminology and plan categories. Existing Keogh-labelled documents should not be discarded; they may still define an active plan’s legal terms.
| Plan type | Contribution structure | Employees | Administration and trade-offs |
|---|---|---|---|
| SEP IRA | Employer contributions to individual SEP-IRAs | Eligible employees generally must receive contributions under the plan’s formula | Relatively simple, but an owner’s contribution decision may require contributions for eligible employees |
| SIMPLE IRA | Employee salary reduction plus required employer contribution | Designed for qualifying small employers | Payroll coordination and annual employee notices apply; contribution flexibility is more constrained |
| Solo 401(k) | Owner may contribute in employee and employer capacities | Generally for an owner with no employees other than a spouse | Can offer design flexibility, but plan documents, records, and eventual annual filing requirements matter |
| Profit-sharing or other qualified defined contribution plan | Employer contribution under the written plan formula | Eligible employees may need coverage | Greater design range can mean more testing, administration, and fiduciary work |
| Defined benefit plan | Contributions are determined to fund a promised benefit | Eligible employees may need coverage | Can support substantial funding in suitable cases, but requires stable cash flow, actuarial work, and ongoing obligations |
This comparison is conceptual. A plan’s eligibility, compensation definition, contribution formula, deadlines, annual limits, and filing requirements must be checked for the applicable year.
Consider two businesses with the same owner profit before retirement contributions:
Business A is a consultant with no employees. The owner may compare a SEP IRA with a one-participant 401(k), focusing on desired contribution structure, setup timing, investments, fees, and filing duties.
Business B has the owner plus three employees who meet a plan’s eligibility conditions. The owner cannot simply copy Business A’s calculation. Employee coverage, employer contributions, nondiscrimination rules, notices, payroll, and plan administration may change both cost and plan choice.
The example shows why employee status is a threshold question. A one-participant 401(k) generally loses its owner-only treatment when eligible common-law employees are hired, and broader plan requirements can apply. The IRS one-participant 401(k) guidance explains this distinction.
A self-employed owner should not multiply net business profit by a headline contribution percentage and assume the result is correct. For some plans, the owner’s plan compensation and deductible contribution require an iterative or adjusted calculation that accounts for self-employment tax and the retirement-plan deduction.
IRS Publication 560 covers SEP, SIMPLE, and qualified plans for small businesses. The IRS also provides a specific guide to calculating a self-employed owner’s contribution and deduction. Current tax software or a qualified professional may be appropriate when compensation, entity structure, employees, multiple plans, or catch-up rules complicate the calculation.
Contributions also depend on the capacity in which they are made:
Separate limits can interact across plans and employers. The business entity’s deduction and the participant’s tax treatment should be verified from current records rather than inferred from who signed the cheque.
Confirm entity type, owners, spouses working in the business, common-law employees, leased employees, related businesses, and expected hiring. Related-employer rules can make a workforce broader than one payroll list suggests.
Use conservative business cash-flow assumptions. A plan with required employer funding may be unsuitable if revenue is volatile or the business lacks reserves for taxes and operating expenses.
Decide whether the owner wants employee salary deferrals, discretionary employer contributions, a fixed formula, or a promised retirement benefit. More potential funding often comes with more administration and less flexibility.
Include setup charges, recordkeeping, custody, investment expenses, payroll integration, tax preparation, third-party administration, participant notices, and actuarial services where applicable.
The plan wrapper does not determine the quality of the investments. Compare diversification, expenses, liquidity, risk, participant control, distribution rules, loans if available, and rollover options.
Read the adoption agreement and plan document. Maintain contribution calculations, employee eligibility records, notices, beneficiary designations, and required filings. Review the plan after hiring, ownership, compensation, or business-structure changes.
Before making or deducting a contribution, check:
This page is for general U.S. financial education, not personalized tax, legal, investment, or retirement advice. Plan limits, deadlines, deductions, employee rules, and filing duties can change. Confirm the current IRS rule and consider qualified tax or benefits advice before establishing, changing, or funding a plan.