How to Save For Retirement When You’re a Self-Employed Millennial

41 percent of millennials have NO access to employer-sponsored retirement plans. See where and how to save for retirement when you're self-employed

I’m 30 years old and with the exception of a few short months, I’ve never had access to an employer sponsored retirement plan.

In the post-recession, gig economy era, individuals (millennials especially), increasingly lack access to the kind of long-term financial infrastructure typically provided by employers – a regular paycheck, health benefits, paid time off, retirement contribution matches, and the aide of an HR professional to navigate it all.



According to Pew, 41 percent of millennials have NO access to either a defined contribution plan or a traditional defined benefit plan through an employer.


For Gen Xers and Baby Boomers, those numbers drop to 35 percent and 30 percent respectively.

Regardless of generational identity or employment status, lack of employer sponsored retirement plan access is not an excuse to skip saving for retirement.


A 2013 survey showed that nearly 70 percent of America’s 10 million self-employed workers aren’t saving regularly for retirement, and 28 percent aren’t saving at all.


If anything, saving for retirement is more important when you’re self-employed, because the burden of securing your future falls entirely on you.

Just as you create your own work opportunities and set your own schedule, it’s up to you to fund your own retirement. Here’s how…


How to Save For Retirement When You’re Self-Employed 


One of the greatest challenges of self-employment is the unpredictability and irregularity of income.


When you don’t know how much you’re going to make from month to month, it’s hard to commit your cash to retirement accounts that you can’t touch until your 60s.


What if you need it to cover a dry spell? Or reinvest in an unexpected growth opportunity?

While this kind of longer-term financial planning is certainly a challenge with inconsistent income, it’s not impossible.

One of the best ways self-employed millennials can make saving for retirement a priority is to pay their future selves first.


If we can learn to treat retirement savings like our other essential expenses, housing, food, etc, and pay that ‘bill’ to ourselves at the start of each month, we’re more likely to make the changes necessary to make retirement savings a priority.

To learn exactly how to incorporate retirement savings into your budget, even with inconsistent income, check out my simple guide to budgeting with irregular income.


We can also take a page from employer sponsored 401(k) plans and automatically deduct retirement contributions from each of our paychecks. Rather than setting aside whatever’s left over at the end of each month, employer sponsored 401(k) plans have employees transfer a percentage of their paycheck directly into retirement savings.

This is kind of automation goes a long way in prioritizing retirement savings, ensuring that future funds don’t get spent unnecessarily elsewhere.

You can develop your own system of automation to make sure your retirement contributions don’t get spent in favor of current wants and needs. While you may not be able to set up direct withdrawals from your paycheck, you can easily schedule regular transfers from your checking account to your retirement account.

Don’t worry, you can always adjust how much you’re setting aside. In fact, when you’re self-employed it’s especially important to make regular reassessments of your retirement contributions. If business is particularly busy, use that opportunity to sock away more money and compensate for times when you may not be able to contribute as much.

Considering the cyclical tendencies of your work opportunities and planning for the highs and lows accordingly, can help you ensure that saving for retirement isn’t an area of your life that becomes continually compromised by the irregularities of your income.


Where to Save For Retirement When You’re Self-Employed 


  • The Roth IRA 


A ROTH IRA is an excellent option for self-employed millennials who want a simple, no-fuss way to start saving for retirement.

You can open a ROTH IRA through online with as little as $1,000.

The maximum contribution per year is $5,500 as of tax year 2017 for singles (under 50 years old) making less than $118,000.

While that isn’t likely to give you enough tax-deferred savings to fund a comfortable retirement, you can always use your ROTH IRA in conjunction with another retirement account to boost your annual retirement contributions.

What makes the ROTH IRA such an attractive retirement savings option for the self-employed is the flexibility it offers. You can withdraw your ROTH IRA contributions at anytime for any reason, without penalty. (Note that if you withdraw your investment earnings, you will be subject to penalties, unless you have a qualifying reason for making those withdrawals).

While raiding your retirement accounts (even penalty free) should be avoided, having access to that cash as a back up plan can be particularly helpful to millennials contending with the challenges of self-employment and inconsistent income.

The other major draw of the ROTH IRA is its tax advantages. While you contribute to a ROTH IRA with your after-tax dollars, the money in your account grows tax-free. Meaning that when you withdraw your money in retirement, you don’t have to pay any taxes on any of it!


  • The SEP IRA 


While the ROTH IRA offers a great tax advantage in retirement, the SEP IRA can help reduce your tax bill now, as you’re saving up for retirement. The set-up is similar to that of an employer-sponsored 401(k).

Contributions aren’t taxed until you start withdrawing from the account, so the SEP IRA could potentially save you thousands in taxes each year, (which can be particularly attractive when you’re self-employed and sending in your own tax payments each quarter).

THE SEP IRA also allows you to make larger annual retirement contributions than a ROTH IRA – up to 25% of your earnings, or $54,000 (as of tax year 2017), whichever is less.

Like the ROTH IRA, this type of retirement savings plan is fairly simple to administer, in that it’s flexible, low cost and easy to set up. There are no required minimum contributions and you can wait all the until your business’ tax filing deadline to pay into to the account, allowing for strategic last minute increased (or decreased) contributions based on annual earnings and tax liability.

It’s important to note that should you eventually add employees later on down the line, you’d have to contribute the same percentage to their SEP IRA accounts that you put in yours. That won’t be an issue if you’re the only employee, but it’s something to consider if you plan on adding full-time staff in the future.




A SIMPLE IRA also functions similarly to an employer-sponsored 401(k), in that your contributions are tax deductible and your investments grow tax deferred until you are ready to make withdrawals in retirement. The main difference is that you’re the employer.

You can contribute 100% of your net earnings from self-employment, up to $12,5000.

This plan is a particularly good option if you already have a few employees, or if you plan on expanding your solo business in the future and would like to offer prospective workers an added perk.

You should note however that that SIMPLE IRA requires you to make a contribution on your employee’s behalf, regardless of whether or not the employee contributes to the account – either a dollar for dollar match, up to 3 percent of salary, or a flat 2 percent of pay.

While this account is cheaper to set up and run than a traditional workplace retirement plan, it can come with hefty annual fees and IRS penalties if you don’t keep up with contributions.


  • The Solo 401(k)


A solo 401(k) is a retirement savings plan specifically designed for sole proprietors and businesses run by married couples.

Because you’re technically both employer and employee, the solo 401(k) allows you to contribute up to $18,000 (as of tax year 2017), plus an additional 25% of your net earnings from self-employment each year.

The Solo 401(k) also comes with a ROTH savings option, where you contribute your after-tax dollars to the account and you’re not taxed when you withdraw your funds in retirement. Unlike the regular ROTH IRA though, there are no income phaseout limits in a Roth Solo 401(k) plan.


How to Choose a Retirement Plan When You’re Self-Employed


Now that you know where you can save for retirement when you’re self-employed, the question is, which plan do you choose?

To answer that, consider your current self-employment status and your future business goals.

For example, if you already have a day job and you’re using your self-employment income to save more for retirement, a SIMPLE IRA that allows you to save 100 percent of your side-hustle income, rather than capping your contributions at 25%, might be a better fit than a SEP IRA.

But if you’re hoping to eventually grow your self-employment income into a six figure business, options like the SEP IRA or Solo 401(k) may allow you to save more in the long run.

It’s also important to consider whether you plan to add employees in the future. For example, you can’t add employees to Solo 401(k), so you’d have to change your plan if you hired someone who wasn’t your spouse.

You also want to consider how saving for your future can benefit you in the present, specifically when it comes time to pay your taxes.

The traditional Solo 401(k), the SEP IRA and the SIMPLE IRA are all pre-tax plans, meaning every penny you save for retirement in those accounts can be deducted from your taxable income.


According to TurboTax, retirement contributions are the number one tax deduction for self-employed business owners.


In other words, taking advantage of retirement accounts when you’re self-employed may not only support your financial future, it can help you keep more money in your pocket today.


While you don’t have an entire HR department to help you save for retirement when you’re self-employed, you can always do your own research and consult with a financial advisor about which retirement savings option best suits your current and future needs.

With so many demands on your limited time and resources, it’s easy for a seemingly distant retirement to be overlooked. But remember, the implications of retirement planning are not limited to ten, twenty or thirty years down the line, even as a millennial. Putting the proper accounts in place and making regular retirement contributions non-negotiable can benefit you today too.



22 responses to “How to Save For Retirement When You’re a Self-Employed Millennial

  1. Very helpful! I personally do a ROTH IRA and a Simple IRA as these made the most sense for me as an entrepreneur and wanting to create a retirement for me so I don’t have to work forever!

    I totally agree that doing these also helps keep more money in my pocket! Which is always a good plus side to anything!

    Saving for retirement is so crucial. I put investment contributions as a line item on bills. It shouldn’t be a “second thought” for you after all your bills are paid.

    1. Thanks for sharing your strategy. Having an investment contribution as a line item in your monthly $ plan is SO smart!

  2. Being an Employee, you are out of all the tensions of retirement planning and savings as the employer will provide you with suitable infrastructure for the employees. But being an Entrepreneur you must be planning for the retirement savings . Here are some types of IRA for you.

    1. It’s definitely nice to have an employer take care of these things for you. Though if we don’t have those benefits, we can serve as our own ‘HR department’.

  3. Very useful article, its something I haven’t really had to experience yet but definitely will soon as I move to being self employed and as state pensions seem to be going the way of the dodo here in the UK. I think the best way with any type of savings is to treat them as a cost so that you just let them leave your account as a standing order each month and treat it like a utility bill. It’s a lot easier mentally to do that than having the money sat in your account and having to make the conscious decision to help your future self.

    1. Exactly! It’s the ‘pay yourself first’ mentality in action. I ‘pay myself’ at the beginning of each month. Right when I pay my rent 🙂

  4. I treat my retirement contribution like a monthly bill and it is automatically deducted from my chequing account. Not making it is no more acceptable than missing my mortgage payment.

  5. One great thing about being self employed is that you can put away even more towards retirement in a tax advantaged account. I think I remember reading you can stash up to $54k per year! It is confusing when you are first getting started, but there is a ton of info out there to help one decide the best retirement savings for their situation.

  6. This is super helpful. I’m looking to start a business in the next six months. This is a lot to think through. If you contribute to an employer sponsored 401k can you put side hustle money into one of these IRAs? I’d love to siphon off more pretax money into one of these.

  7. Saving for retirement is not optional. Thanks for laying out the options open to self employed people. Are there any investments you would recommend for 30 somethings to invest in?

    1. I like to keep my investments simple with low fee index funds and ETFs, both in my retirement accounts and out.

  8. My question, are there any real advantages to having a 401K account? My 88 year old father, retired self-employed businessman, never had one. However, he does have small qualified account, comparatively speak to his overall funds. For a first-time investor, he should look at both Roth type accounts, IRA and 401K, in the mix with one’s tax-deferred accounts.

    1. One of the biggest advantages of the 401k account that you don’t get from an IRA for example is the employer match. Not all employers offer it, but if yours done, it’s a huuuge advantage – literally free money.

  9. Millennials who pursue self-employment know there are lots of perks to being your own boss. You can make your own hours, set your own dress code, and decide where and when you will work. However, there is a downside. As a self-employed Millennial, you do not get a retirement savings plan through your employer.

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