by Tiana, Freelance Finance Blogger
You’re self-employed. You make your own rules. But when it comes to retirement?
No HR department. No company match. Just you, your income, and the IRS contribution limits. And here’s the scary part: most freelancers aren’t saving nearly enough. According to the Social Security Administration’s January 2025 report, the average monthly retirement benefit is $1,907. That barely covers rent in many U.S. metro areas. This gap between what you’ll need and what you’ll actually have? Experts call it the retirement savings gap.
I thought my Roth IRA would be enough. Spoiler: it wasn’t. When I compared IRA vs Solo 401k projections, the difference wasn’t hundreds—it was hundreds of thousands. That’s when I realized: it’s not about choosing later. It’s about acting now.
Table of Contents
- Why the retirement savings gap is worse for freelancers
- IRA basics and limits in 2025
- Solo 401k explained with real tax advantages
- Self-employed tax deductions with retirement accounts
- Case study: IRA vs Solo 401k long-term wealth building
- Action checklist before you choose
- Quick FAQ freelancers actually ask
Why the retirement savings gap is worse for freelancers
Employees get automatic 401k deposits. Freelancers? Nothing happens unless you move.
The Transamerica Center for Retirement Studies 2024 survey showed that 58% of self-employed workers save inconsistently, skipping entire years. Combine that with the SSA’s $1,907 average benefit, and you’ve got a recipe for long-term struggle. Experts call this the retirement savings gap—and freelancers are hit hardest.
Imagine this. A designer earning $110,000 contributes the IRA max ($7,000) each year. After 20 years at 7% growth, that’s roughly $290,000. Now compare a Solo 401k contribution of $30,000 annually. End balance? Nearly $1.3 million. That’s the canyon between just surviving and actually retiring.
I almost ignored it myself. I thought, “I’ll just add more later.” Spoiler: the IRS doesn’t allow catch-ups for missed years (except small 50+ boosts). Once a year is gone, it’s gone. And that still bothers me.
If you’re wondering how SEP IRAs fit into this picture, check this breakdown👆. It explains IRA, SEP, and Solo 401k in plain terms so you can see which actually fits your income.
Compare SEP vs Solo 401k
IRA basics and limits in 2025
IRAs are simple to open—but painfully capped.
The Individual Retirement Account (IRA) is the first stop for many freelancers. Easy setup, no business registration required, and available at any brokerage. In 2025, the limit is $7,000 (or $8,000 if you’re 50+). Traditional IRA gives you a tax deduction now. Roth IRA lets you build tax-free income later. Both are solid—but limited.
Here’s the problem. If you’re a freelancer earning six figures, $7,000 is like trying to fill a swimming pool with a cup. It’s something, sure, but nowhere near enough to close the retirement savings gap.
I maxed out my Roth IRA for three years. Felt good. Then my CPA said: “That’s it? Just $6,500 a year?” That’s when it hit me: I wasn’t building long-term wealth. I was just checking a box.
Solo 401k explained with real advantages
The Solo 401k isn’t just a bigger IRA—it’s a different league.
Here’s how it works. As the “employee” you can contribute up to $23,000 in 2025 (or $30,500 if you’re 50+). On top of that, wearing your “employer” hat, you can contribute 25% of your net self-employment earnings. Together, the total limit is $69,000. That’s nearly ten times the IRA cap. For a freelancer making $120,000, that could mean setting aside $40,000 in one year instead of just $7,000.
Think of the Solo 401k as both offense and defense. Offense, because you can accelerate wealth. Defense, because every dollar you contribute lowers your taxable income. According to Fidelity’s 2024 Retirement Savings Analysis, freelancers who start Solo 401k contributions by age 30 instead of waiting until 35 retire with 35% more wealth. Five years seems small. But compounding doesn’t forgive delays.
I learned this the hard way. By year three of freelancing, I almost gave up on the Solo 401k paperwork. IRS Form 5500? My eyes glazed over. I thought: “Too complicated. I’ll stick with IRA.” Then I ran the numbers. Over 20 years, the difference was over $1 million. Suddenly, one form per year didn’t feel so bad.
Self-employed tax deductions with Solo 401k
The tax break is where Solo 401k really shines.
Let’s take an example. A freelance UX designer in Austin makes $100,000 net. She contributes $25,000 to her Solo 401k. Her taxable income drops to $75,000. At a 22% federal rate, that’s $5,500 saved in taxes—this year. Add state taxes? The relief is even bigger. Compare this to an IRA: $7,000 contribution = about $1,540 in savings. Not bad, but nowhere close.
This is what I call the “hidden cash flow win.” You’re not just saving for later. You’re freeing up money now—money that can cover health insurance, quarterly taxes, or reinvestment into your business. According to the IRS contribution rules, unused room doesn’t carry over. That means if you skip a year, it’s gone. I once thought I could double up the next year. Spoiler: the IRS doesn’t allow that. I lost that year’s opportunity forever, and it still annoys me.
Case study: long-term wealth building with Solo 401k
Let’s see the numbers in action.
David, a freelance consultant in Chicago, earned $95,000 per year. For three years, he only used a Roth IRA, contributing $6,500 annually. Balance after three years: about $22,000 with growth. Then he switched to a Solo 401k. In year one alone, he contributed $25,000. After three years? His Solo 401k already surpassed his IRA total by nearly 3x.
The shocker? His quarterly estimated tax dropped by $4,800. That was the moment he said: “I thought this was only about retirement. Turns out, it’s about breathing easier today.” That peace of mind is rarely mentioned, but every freelancer who’s written a big IRS check knows how real it feels.
If you’re wondering about the tax side beyond retirement—like how self-employed deductions reduce taxable income—this detailed breakdown is worth your time👆
See IRS rules clearly
IRA vs Solo 401k side by side comparison
Sometimes the easiest way to decide is to see it in a table.
| Feature | IRA | Solo 401k |
|---|---|---|
| 2025 Contribution Limit | $7,000 ($8,000 if 50+) | Up to $69,000 |
| Tax Deduction Potential | Small | Very large, lowers taxable income significantly |
| Paperwork | Minimal | Form 5500 after $250k |
| Best For | Beginners, low income years | High earners, long-term wealth building |
Looking at this, the difference jumps out. If your income is modest or irregular, IRA is a gentle start. But if you’re aiming for serious long-term wealth building, Solo 401k is your powerhouse.
Common mistakes freelancers make
Here’s where people trip up—and I’ve done some of these myself.
- ✅ Assuming they can “catch up later.” Spoiler: IRS rules don’t allow rollovers of missed contributions.
- ✅ Forgetting to file Form 5500 once assets pass $250k. Miss this? Penalties can stack fast.
- ✅ Only using IRA for a six-figure business. Feels safe, but leaves hundreds of thousands on the table.
- ✅ Not mixing Roth + Traditional. I once went 100% pre-tax, then realized in retirement I’d face huge withdrawals fully taxed.
The weirdest mistake I made? I thought my accountant was handling contributions automatically. Three months later—zero deposited. My fault. I assumed, didn’t check. That small slip cost me thousands in compounding.
Action checklist before choosing your plan
Not sure where to start? Use this as your quick action map.
This checklist saved me from skipping contributions during a chaotic year. I taped it above my desk. Simple, but effective. And yes—still using it today.
If you’re also juggling health insurance choices alongside retirement planning, this guide might clear the fog👆
See health subsidy tips
Conclusion: IRA vs Solo 401k isn’t just numbers, it’s future freedom
If you take one thing from this, let it be this: inaction costs more than a wrong choice.
The IRA is simple. Accessible. A safe on-ramp. But it caps out too quickly to close the retirement savings gap if you’re self-employed. The Solo 401k? It’s more paperwork, sure. But it unlocks serious self-employed retirement strategies—bigger contributions, better freelancer tax deductions, and real long-term wealth building. Every year you skip is wealth lost forever. I’ve felt that sting, and I wouldn’t wish it on anyone.
Quick FAQ: IRA vs Solo 401k for self-employed
These are the questions freelancers ask me most—and the answers I wish I’d known earlier.
Can I roll over an old employer 401k into a Solo 401k?
Yes. Most providers allow rollovers. That means if you left corporate with $80,000 in a 401k, you can move it into your Solo 401k and keep growing in one account. Easy consolidation, no excuses.
What happens if I skip a contribution year?
You lose it. The IRS doesn’t let you double up later. I learned this the hard way—skipped one year thinking I’d “catch up.” Spoiler: I couldn’t. And that single gap cut my future balance by nearly 10%.
Which is better if I have irregular income?
If your income swings, start with IRA to stay consistent, then add Solo 401k in higher-earning years. Many freelancers actually use both—small IRA deposits plus big Solo 401k pushes when projects are strong.
What about SEP IRA vs Solo 401k?
SEP IRA is simpler for one-time contributions, but it doesn’t allow Roth savings or employee deferrals. Solo 401k offers both. That’s why for long-term freelancers, Solo 401k usually wins.
Can I take money out early?
Technically yes, but it hurts. Early withdrawals before 59½ trigger taxes and penalties. Think of retirement accounts as locked vaults—you’ll thank yourself later. Short-term cash flow? Find another way.
Your next step as a freelancer
You don’t have to master every IRS rule today. You just need to move.
Start with what you can. Open a Roth IRA if that’s the easiest step. Upgrade to Solo 401k once income grows. Automate even small contributions. Over time, these consistent steps build a safety net that no client drought or tax bill can take away. Remember, according to the SSA (2025), the average retiree gets just $1,907 monthly. That’s why your private savings matter.
If you’re curious about how retirement contribution limits are changing this year and how that affects you, this detailed update is worth a read👆
Check 2025 limits
Sources
- IRS, “Retirement Topics – Contribution Limits,” 2025 update
- Social Security Administration, “Monthly Statistical Snapshot,” Jan 2025
- Fidelity Investments, “2024 Retirement Savings Analysis”
- Transamerica Center for Retirement Studies, “Self-Employed Retirement Survey 2024”
#IRA #Solo401k #FreelancerFinance #SelfEmployedRetirement #WealthBuilding
💡 Secure your future now
