As a sole proprietor, planning for your retirement is a crucial step in securing your financial future. You’re in control of your business, but you also need to be smart about how you save for the long term. The good news is that there are several retirement plan options available, each with unique benefits. Some are easy to manage, while others can be more complex but allow for larger contributions. Let’s walk through the top retirement plans for sole proprietors in 2025, and explore the pros and cons of each one. This way, you can make an informed decision on what will work best for you. 

2. SIMPLE IRA (Savings Incentive Match Plan for Employees) 

The SIMPLE IRA is a step up in terms of complexity from a SEP IRA, but it still remains straightforward and affordable. It’s ideal if you want to offer retirement benefits to employees while also saving for your own retirement. In addition to the employee contributions, you’re required to make a contribution as well. 

• Contribution Limit: Employees can contribute up to $16,500, with a $3,500 catch-up contribution for those 50 or older. 

• Employer Contributions: You must either match employee contributions up to 3% of their salary or contribute 2% of each employee’s salary (whether they contribute or not). 

• Tax Deductible: Contributions reduce your taxable income. 

• Administrative Ease: Minimal paperwork compared to other plans, though you do need to file basic forms with the IRS. 

If you have employees and want to offer them a simple, cost-effective retirement plan while also contributing to your own retirement savings, the SIMPLE IRA strikes a good balance. 

3. Solo 401(k) 

For those looking to maximize their retirement savings, the Solo 401(k) offers the most significant contribution potential. It allows for both employee and employer contributions, which can really add up if you want to save aggressively. This plan is ideal if you’re looking to save the maximum amount possible and have a bit more flexibility in how you invest. 

• Contribution Limit: As an employee, you can contribute up to $23,500, with a $7,500 catch-up if you’re 50 or older. As the employer, you can contribute up to 25% of your net income, with a total contribution limit of $70,000 (or $77,500 for those 50+). 

• Flexibility: You can choose between traditional or Roth Solo 401(k) plans, offering tax-deductible contributions now or tax-free withdrawals in retirement. 

• Loan Options: You may be able to take loans against your contributions, which is a perk if you need quick access to funds. 

• Drawback: It’s more administratively complex, especially if your retirement plans balance exceeds $250,000, as you’ll need to file an IRS Form 5500. 

If you’re comfortable with a little extra paperwork and want to contribute larger sums toward retirement, the Solo 401(k) is your go-to option.  Remember, If you have any employees, it’s no longer a “solo” plan and you must follow standard 401(k) rules. 

4. Traditional IRA 

A Traditional IRA is one of the most straightforward options for saving for retirement. It’s easy to set up and maintain, and it offers the benefit of tax-deductible contributions. While the contribution limits are lower than some of the other options, it’s still a solid choice for those who prefer simplicity and don’t need to save as much. 

• Contribution Limit: You can contribute up to $7,000 if you’re under 50 and $8,000 if you’re 50 or older (for 2025). 

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

• Drawback: The contribution limits are lower than other options, which might not be enough for higher earners. Additionally, you’ll need to start taking required minimum distributions (RMDs) at age 73. 

A Traditional IRA is perfect for those looking for a simple, easy way to save with tax benefits, but it might not provide enough room for larger contributions if you want to save aggressively.  Note: Tax deductibility phases out if you (or spouse) are covered by a workplace plan and your income exceeds IRS thresholds. 

5. Roth IRA 

A Roth IRA is similar to a Traditional IRA, but with one big advantage: when you withdraw the funds in retirement, they are tax-free. This makes it a great option for individuals who expect to be in a higher tax bracket when they retire. While the upfront tax benefit isn’t there, the tax-free growth in retirement can be a huge plus. 

• Contribution Limit: You can contribute up to $7,000 (or $8,000 if you’re 50 or older). 

• Tax-Free Withdrawals: Once you reach retirement age, you can withdraw your funds tax-free, which is a significant advantage.  *Only if the account is open at least 5 years and withdrawals occur at age 59½+ (or meet other qualified distribution rules). 

• Drawback: There are income limits for Roth IRA eligibility, so if you make too much, you may not be able to contribute directly. Additionally, contributions are not tax-deductible. 

If you expect your tax rate to be higher in retirement, or if you simply prefer the idea of tax-free withdrawals in the future, a Roth IRA is worth considering. 

6. Cash Balance Pension Plan 

For high-income earners, a Cash Balance Pension Plan is one of the most powerful retirement savings tools available. It’s a defined benefit plan, which means it guarantees a specific retirement benefit, similar to a traditional pension. This type of plan allows for large contributions, especially if you’re nearing retirement age. 

• Contribution Limit: Contributions can exceed $100,000, depending on your income and age. 

• Large Contributions: If you’re a high earner, this is an excellent way to save large sums toward retirement. 

• Drawback: This plan is complex to set up and requires ongoing administrative management, making it more time-consuming and expensive than the other options. 

If you’re looking to maximize your retirement savings and can handle the extra administrative complexity, the Cash Balance Plan can be an ideal option, especially for high-income individuals nearing retirement. 

At a Glance: Comparing Retirement Plan Options for Sole Proprietors 

Below, you’ll find a quick comparison of the most common retirement plans for sole proprietors: SEP IRA, SIMPLE IRA, Solo 401(k), Traditional IRA, Roth IRA, and Cash Balance Pension Plan. Each plan has its own benefits, and the best choice for you depends on factors like your business goals, income, and how involved you want to be in the plan’s administration. 

Here’s a simple chart you can easily copy and paste into your blog post: 

Plan Type	Contribution Limits (2025)	Pros	Cons	Administrative Complexity
SEP IRA	Up to 25% of net earnings (max $70,000)	– High contribution limits- Flexible contributions – Easy to set up	– No employee salary deferrals – Same % for all employees	Low: Minimal paperwork, IRS Form 5305-SEP
SIMPLE IRA	Employee deferral: $16,500 Catch-up: $3,500	– Lower administrative burden – Employee deferrals allowed	– Mandatory employer contributions – Lower contribution limits	Low: Requires annual employer contributions, basic IRS paperwork
Solo 401(k)	Employee deferral: $23,500 Catch-up: $7,500 Total: $70,000 (or $77,500 for 50+)	– Highest contribution limits – Allows both employee and employer contributions – Roth option	– More admin work- IRS Form 5500 if assets exceed $250,000	Medium: Requires plan provider, more paperwork
Traditional IRA	$7,000 Catch-up: $1,000	– Easy to open – Tax-deductible contributions (depending on income)	– Low contribution limits – RMDs start at age 73	Low: Simple setup and management
Roth IRA	$7,000 Catch-up: $1,000	– Tax-free withdrawals* – No RMDs – Flexible contribution withdrawal	– Income limits restrict eligibility – No tax deductions	Low: Easy to set up and maintain
Cash Balance Pension Plan	Varies by age and income (can exceed $100,000)	– High contribution limits, especially for older business owners – Guaranteed retirement benefit	– Higher admin costs – Requires annual actuarial support	High: Requires actuarial support

Key Considerations When Choosing a Retirement Plan 

When you’re deciding which retirement plan is best for your business, there are a few key factors to consider: 

• How much do you want to contribute? If you’re looking to save large amounts, plans like the Solo 401(k) or Cash Balance Plan are your best options. 

• What level of administrative work are you willing to handle? If you prefer simplicity, a SEP IRA or Traditional IRA may be the right fit. 

• Do you have employees? Plans like the SIMPLE IRA or SEP IRA work well if you have a team, while Solo 401(k) and Traditional IRA are better for sole proprietors. 

By assessing your priorities, you’ll be able to select the right plan that aligns with your retirement goals. 

Final Thoughts 

Choosing the right retirement plan is one of the most important decisions you’ll make as a sole proprietor. Whether you’re looking for simplicity, flexibility, or the ability to save larger sums, there’s a plan that fits your needs. Take the time to evaluate your business’s financial situation and future goals to select the best retirement option for you. And if you need help, don’t hesitate to consult a retirement plan expert to guide you in the right direction. 

Ready to take the next step? Connect with a plan specialist to explore your retirement plan options and get tailored guidance for your business.