Self-employed individuals can choose from a SEP-IRA (up to 25% of net self-employment income, max $72,000 in 2026), a Solo 401(k) (up to ~$70,000 plus $7,500 catch-up if over 50), a SIMPLE IRA, or a Defined Benefit Plan (which can shelter $100,000+ annually for high earners). The Solo 401(k) is typically the best option for most self-employed individuals because it allows both employee deferrals and employer contributions.

In 2026, a Solo 401(k) allows up to $24,500 as an employee deferral (plus $7,500 catch-up if over 50) plus up to 25% of net self-employment income as an employer contribution, for a combined maximum of approximately $70,000 ($77,500 with catch-up). This is significantly higher than a SEP-IRA for most income levels.

Generally no — you cannot contribute to both a Solo 401(k) and a SEP-IRA for the same self-employment income in the same year. However, you can have a Solo 401(k) for your self-employment income and participate in an employer's 401(k) at a day job, though combined employee deferrals across all plans are capped at $24,500 in 2026.

You must establish a Solo 401(k) by December 31 of the tax year to make employee deferrals for that year. Employer profit-sharing contributions can be made up to the tax filing deadline (including extensions). A SEP-IRA, by contrast, can be established and funded up to the tax filing deadline.

No — retirement contributions reduce income tax but not self-employment tax. SE tax is calculated on net self-employment income before retirement contributions. However, the deduction for half of SE tax reduces your AGI, which in turn reduces the base on which retirement contribution limits are calculated.

The Retirement Plan Startup Credit (Form 8881) provides a tax credit for small businesses that establish a new qualified retirement plan (401(k), SEP-IRA, SIMPLE IRA, or defined benefit plan). Under SECURE 2.0, businesses with 50 or fewer employees can claim 100% of eligible startup costs up to $5,000/year for the first 3 years — a maximum of $15,000 in total credits.

Eligible startup costs include: plan setup and administration fees, employee education and enrollment costs, and costs to set up payroll integration. The credit covers 100% of these costs for businesses with 50 or fewer employees, and 50% for businesses with 51-100 employees. Businesses with more than 100 employees do not qualify.

Yes — SECURE 2.0 added a $500/year credit for plans that include automatic enrollment features. This credit is available for the first 3 years of the plan and stacks on top of the startup cost credit. A plan with automatic enrollment can generate up to $16,500 in total credits over 3 years ($15,000 startup + $1,500 auto-enrollment).

No — the startup credit is only available for new plans. If you already have a retirement plan and want to add features (like automatic enrollment), you may qualify for the auto-enrollment credit but not the startup cost credit. The plan must be established for the first time to qualify for the startup credit.

The best plan depends on your goals: a Safe Harbor 401(k) avoids discrimination testing and allows maximum contributions for owner-employees; a SIMPLE IRA is easier to administer but has lower contribution limits; a SEP-IRA is easy to set up but requires proportional contributions for all eligible employees. Uncle Kam can model the contribution and tax savings for each option based on your payroll.

A Simplified Employee Pension (SEP-IRA) is a retirement account for self-employed individuals and small business owners. It allows contributions of up to 25% of net self-employment income (after the SE tax deduction), with a maximum of $72,000 in 2026. Any self-employed person with net income can open a SEP-IRA.

A SEP-IRA can be opened and funded up to the tax filing deadline, including extensions. For a sole proprietor, this means you can open a SEP-IRA and make a 2026 contribution as late as October 15, 2027 (with an extension). This makes it the most flexible retirement plan for last-minute tax planning.

The SEP-IRA contribution limit is 25% of net self-employment income (after deducting half of self-employment tax), up to a maximum of $72,000 in 2026. For a freelancer with $100,000 in net income, the maximum SEP-IRA contribution is approximately $18,587.

For most self-employed individuals, a Solo 401(k) allows higher contributions because it includes both employee deferrals and employer contributions. A SEP-IRA is simpler to administer and can be opened after year-end. If you want maximum contributions and are willing to manage payroll, the Solo 401(k) wins. If simplicity is the priority, the SEP-IRA is excellent.

Yes. SEP-IRA contributions do not affect your ability to contribute to a Roth IRA (subject to income limits) or use the backdoor Roth strategy. However, having pre-tax SEP-IRA funds can complicate backdoor Roth conversions due to the pro-rata rule. Uncle Kam helps clients navigate this interaction.

Self-employed individuals pay 15.3% self-employment tax (covering Social Security and Medicare) on net self-employment income. The IRS allows you to deduct 50% of the SE tax paid as an above-the-line deduction on Schedule 1 of your Form 1040. This deduction reduces your adjusted gross income and is available regardless of whether you itemize.

The deduction equals 50% of your total SE tax. For someone with $100,000 in net SE income, the SE tax is approximately $14,130, and the deduction is $7,065. At a 24% marginal rate, this saves $1,696 in income taxes — on top of the SE tax already paid.

No. The SE tax deduction is an above-the-line deduction, meaning it reduces your adjusted gross income (AGI) regardless of whether you take the standard deduction or itemize. It is one of the most straightforward and universally available deductions for self-employed individuals.

The most effective way to reduce SE tax is to elect S-Corp status. As an S-Corp, you pay SE tax (payroll taxes) only on your reasonable salary — not on the full profit. Distributions above the salary are not subject to SE tax. For someone earning $150,000+ net, this can save $10,000–$20,000/year.

No. They are separate deductions. The SE tax deduction (50% of SE tax paid) reduces your AGI. The QBI deduction (up to 23% of qualified business income under the OBBBA) is a separate below-the-line deduction that reduces taxable income. Both are available to self-employed individuals and can be claimed simultaneously.

A Solo 401(k) is a retirement plan for self-employed individuals with no full-time employees other than a spouse. It allows contributions in two capacities: as an employee (up to $24,500 in 2026, plus $7,500 catch-up if 50+) and as an employer (up to 25% of net self-employment income), with a combined limit of approximately $70,000 in 2026.

The total Solo 401(k) contribution limit is approximately $70,000 in 2026 ($77,500 if age 50 or older). This includes up to $24,500 in employee deferrals plus employer profit-sharing contributions of up to 25% of net self-employment income (after the SE tax deduction).

A Solo 401(k) must be established by December 31 of the tax year for which you want to make contributions. Employee deferrals must also be made by December 31. Employer profit-sharing contributions can be made up to the tax filing deadline (including extensions).

Yes, but the employee deferral limit ($24,500 in 2026) applies across all 401(k) plans combined. If you contribute $24,500 to your employer's 401(k), you cannot make additional employee deferrals to your Solo 401(k). However, you can still make employer profit-sharing contributions to the Solo 401(k).

A Solo 401(k) generally allows higher contributions for most self-employed individuals because it includes both employee deferrals and employer contributions. A SEP-IRA is limited to 25% of net self-employment income (no employee deferral component). For someone earning $100,000 net, a Solo 401(k) allows $46,000 vs. $18,587 for a SEP-IRA.

A home office must be used regularly and exclusively for business — a dedicated room or clearly defined space used only for work. A kitchen table where you occasionally work does not qualify. The space must be your principal place of business or where you meet clients.

No. The Tax Cuts and Jobs Act of 2017 eliminated the home office deduction for W-2 employees through 2025. Only self-employed individuals, freelancers, and business owners can currently claim the home office deduction.

You can deduct the business-use percentage of your internet bill. If your home office is 10% of your home's square footage, you can deduct 10% of your internet costs. If you use the internet exclusively for business (a separate business line), you can deduct 100%.

The simplified method allows you to deduct $5 per square foot of your home office, up to 300 square feet ($1,500 maximum). It is easier to calculate but often produces a smaller deduction than the actual expense method for most homeowners.

The home office deduction is not an automatic audit trigger. The IRS does scrutinize it, but a properly documented, legitimate home office is fully defensible. The key is the "exclusive use" requirement — the space must be used only for business, not as a guest room or general living area.

A Health Savings Account (HSA) offers three tax benefits: (1) contributions are tax-deductible, (2) the balance grows tax-free, and (3) withdrawals for qualified medical expenses are tax-free. No other account offers all three benefits simultaneously. After age 65, HSA funds can be withdrawn for any purpose (taxed as ordinary income, like a Traditional IRA).

The 2026 HSA contribution limits are $4,400 for self-only coverage and $8,750 for family coverage. Individuals age 55 or older can contribute an additional $1,000 catch-up contribution. The OBBBA also expanded HSA eligibility to include bronze and catastrophic health plans starting in 2026.

In 2026, an HDHP must have a minimum deductible of approximately $1,700 (self-only) or $3,400 (family) and maximum out-of-pocket limits of approximately $8,500 (self-only) or $17,000 (family). The OBBBA also expanded eligibility to bronze and catastrophic ACA plans starting in 2026 — check with your plan administrator.

Yes — and this is the most powerful HSA strategy. Instead of leaving HSA funds in a low-interest cash account, invest them in index funds or ETFs for tax-free growth. Many HSA providers (Fidelity, Lively, HSA Bank) offer investment options. Paying current medical expenses out of pocket and letting the HSA grow invested is the optimal long-term approach.

Before age 65, non-medical HSA withdrawals are subject to income tax plus a 20% penalty. After age 65, non-medical withdrawals are taxed as ordinary income (like a Traditional IRA) with no penalty. This makes the HSA a powerful retirement account that also covers medical expenses tax-free.