By Steve Garmhausen

Self-employment can be a powerful wealth builder, but self-employed entrepreneurs often sleepwalk into a retirement-readiness crisis. Solo operators routinely underfund retirement accounts, confuse their business with their nest egg, and gamble on a someday sale that may never come. For this week's Barron's Advisor Big Q feature, we asked a panel of professionals to share their top tips for the self-employed.

Patrick Shope, certified wealth strategist, Shope + Associates (Axtella): Your business isn't a retirement plan. It's a job that pays you. A buyer may show up one day with a fair number. But maybe they don't. Hanging your whole future on that one transaction is the bet I see go wrong most often in this group. If you're a one-person shop, a solo 401(k) almost always beats a SEP IRA, because you contribute as both the employee and the employer. Higher earners with steady profits should look hard at adding a cash balance plan on top. That can get serious money off the tax table during peak earning years. Consider stacking vehicles. A solo 401(k) plus a cash balance plan plus a health savings account in the same year can shelter a significant amount. Most people use one vehicle. You may get further ahead using all three.

Then automate it. Pay yourself first by treating your retirement account the same way you pay the phone bill. Pick a number that stings a little. If it doesn't sting, it's probably not enough. The clients who come out ahead generally aren't the ones who time everything right. They stopped waiting for the perfect year. You can't go back and compound the years you skipped. Think about using the lumpy income years to your advantage. Most self-employed people have feast-and-famine years. The most successful treat a big year as a contribution year rather than an increased lifestyle year.

Judith Leahy, senior wealth advisor, Citi : For self-employed professionals, saving for retirement presents unique challenges and opportunities. One area to focus on is optimizing retirement plans and avoiding under-saving. Don't limit yourself to traditional and/or Roth IRAs with their lower contribution caps. Instead, utilize tax-advantaged vehicles designed for business owners, such as a SEP, Simple IRA, or solo 401(k). These plans allow higher contributions, which will accelerate your savings and minimize your income by the contribution amount. I encourage clients to automate their contributions and treat them as an essential business expense.

Maintain separation: Commingling business and personal finances is a mistake you don't want to make. This blurs your financial clarity, complicates taxes, and will impact your ability to accurately assess your financial health. Be sure to have distinct bank accounts and credit cards for your business. Beyond savings, it's important to safeguard the future with insurance. Secure disability insurance to protect your income if you're unable to work and life insurance to cover personal and business obligations. If you have a partner, consider the outcome if one [of you] should pass and who would fill your partner's shoes. Insurance can play a role here as well. Finally, develop a succession plan. Never treat your business as your sole retirement plan. Relying on a future sale is risky for many reasons such as potential illiquidity or market fluctuations. Develop a comprehensive succession plan outlining how ownership will transition. This helps protect your business' value, allowing you to build a dedicated retirement fund while preparing your enterprise for its next phase.

Lucas Belanger, private wealth advisor, Verdence Capital Advisors: One of the most common oversights I see when working with high-earning consultants, freelancers, etc., is that they often leave tens of thousands of dollars in tax savings and growth potential untapped each year by not choosing and optimizing the retirement plan that best fits their business structure and lifestyle.

I often see these clients go with what might feel easiest rather than considering how a different retirement plan's features or functionality might better support their overall financial plan and long-term goals. It isn't necessarily about figuring out the maximum contribution amount. Plans like a solo 401(k), for example, might allow self-employed individuals to make employee deferrals, employer profit-sharing contributions, make backdoor and mega-backdoor Roth contributions, and might work better with qualified-business-income deductions. Spousal employment opportunity is another potential benefit with a solo 401(k). I always encourage these clients to treat retirement funding almost like a non-negotiable core business expense and to also think of it as a tax strategy. Set up automatic transfers to take the emotion out of saving aggressively for retirement.

I encourage those who are self-employed to stay focused on maintaining cash reserves and a healthy taxable brokerage account outside the business. Often, I see self-employed clients either keep all of their liquidity in the business or pour it back into the business, with little thought for simple financial planning concepts like keeping an emergency fund.

Adrianna Adams, head of financial planning, Domain Money: The most important first step for clients who are self-employed is to bridge the gap between their business plan and their personal financial plan. I find that most entrepreneurs know exactly where they want their business to go but have no idea where they personally want to end up or how to get there. You have to reverse-engineer the math. What does your business actually need to pay you, not just to cover your life today, but to fund the retirement you want? That number usually looks very different from a W-2 salary once you account for self-employment taxes. Or if you're putting all of your profits back into the business, what do you need to grow the business to and sell it for to fund your long-term personal goals?

The next step is choosing the right type of retirement account for yourself. SEP IRAs tend to be more common, but I find myself recommending solo 401(k) plans more often, as they give you both Roth and pretax contribution options. Technically, Roth SEP IRA contributions exist under The Secure 2.0 Act, but most major brokerage firms haven't built the infrastructure yet, so in practice your options are limited. Building a bucket of tax-free money via Roth contributions can be very powerful. Solo 401(k) plans also keep the backdoor Roth IRA strategy on the table, as long as you don't have other pretax IRA balances sitting around, or you roll those into the 401(k) first.

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May 27, 2026 15:06 ET (19:06 GMT)

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