Retirement Plans for 1099 Employees: Options, Limits, and Deadlines

Independent contractors paid on a 1099 have access to retirement plans for 1099 employees that shelter far more income than any workplace 401(k). For 2026, a self-employed person with no employees can put up to $72,000 into a Solo 401(k) or SEP IRA, and those 50 or older can add $8,000 more in catch-up contributions.¹ For most contractors a Solo 401(k) is the strongest option; a SEP IRA is the easier alternative; and a traditional or Roth IRA can sit on top of either. Which one fits depends on your net earnings, whether you have any employees, and how much administrative work you’re willing to take on.

How Your Net Earnings Set the Ceiling

Every contribution limit for a self-employed person starts from net earnings from self-employment, not gross revenue. You take your business income, subtract ordinary business expenses, and then subtract the deductible half of your self-employment tax.² That figure, sometimes called plan compensation, is the base every percentage runs against.

There’s a wrinkle that trips people up. When you calculate the “employer” side of a contribution, the contribution itself reduces the income it’s calculated on. Because of that circular math, a headline rate of 25% of compensation works out to about 20% of net self-employment earnings.³ IRS Publication 560 has the rate tables, and most tax software handles it automatically.

You’ll also choose between two tax treatments. Pre-tax contributions cut your taxable income now and are taxed on withdrawal in retirement. Roth contributions give no deduction today, but qualified withdrawals, including growth, come out tax-free.

The Solo 401(k)

The Solo 401(k) is the most powerful plan available to a contractor with no full-time employees other than a spouse. It lets you contribute as both the employee and the employer of your own business, which is why it beats every other plan at the same income level.⁴

2026 Contribution Limits

The employee elective deferral is capped at $24,500 for 2026, and you can direct it to a traditional account, a Roth account, or split it between the two.⁵ On top of that you add an employer profit-sharing contribution of up to 25% of compensation, which after the circular calculation lands near 20% of net self-employment earnings.

The two pieces together cannot exceed $72,000 for 2026 before catch-ups.⁶ Hitting that ceiling takes roughly $237,500 in net earnings. Below that income, the Solo 401(k) still outperforms a SEP IRA, because the $24,500 employee deferral doesn’t exist in a SEP. A contractor with $100,000 in net earnings can put roughly $44,500 into a Solo 401(k) versus about $20,000 in a SEP.

Catch-Up Contributions

If you’re 50 or older, an extra $8,000 rides on top of the $72,000 limit, taking the maximum to $80,000 for 2026.⁵ Under SECURE 2.0, workers who turn 60, 61, 62, or 63 during the tax year get a super catch-up of $11,250, bringing the potential total to $83,250. Starting the year you turn 64, you’re back to the standard $8,000 catch-up.⁶

Roth Deferrals, Roth Employer Contributions, and Plan Loans

The employee deferral can go into a Roth account if your plan document allows it. Recent legislation also lets the employer profit-sharing contribution be designated as Roth, but only if the plan document specifically authorizes it. A Solo 401(k) can permit participant loans up to the lesser of $50,000 or 50% of your vested balance, a feature no IRA-based plan offers.⁷

Paperwork

The Solo 401(k) carries more administration than a SEP. You need a formal plan document, which most major brokerages provide as a free prototype. Once total plan assets across all your one-participant plans exceed $250,000, you must file IRS Form 5500-EZ each year, and that filing continues as long as assets stay above the threshold.⁸

The SEP IRA

The Simplified Employee Pension IRA is the easier alternative. No plan document to draft, no annual filing, and you can open and fund one on the same day. The trade-off is a lower contribution ceiling for anyone earning less than roughly $360,000 in net self-employment income.

A SEP accepts only employer contributions. There is no employee deferral. The 2026 maximum is the lesser of 25% of compensation or $72,000, which after adjustment lands around 20% of net earnings.⁹ No catch-up contributions are available in a SEP at any age.

When a SEP IRA Is the Better Fit

SEP contributions are fully discretionary. In a lean year you can put in nothing with no consequences. And you can establish a SEP as late as the tax filing deadline, including extensions, for the prior year.¹⁰ File an extension in April, finalize your profit in September, open and fund the SEP by October 15, all for the prior tax year. No other plan gives you that kind of retroactive flexibility.

The Roth SEP Option

Under SECURE 2.0, SEP plans can now allow employer contributions to be designated as Roth. Not every custodian offers this yet, so check before assuming it’s available at your brokerage.³

Traditional and Roth IRAs on Top

You can generally contribute to a traditional or Roth IRA in addition to a Solo 401(k) or SEP. The 2026 IRA limit is $7,500, with a $1,100 catch-up at 50 or older, for a total of $8,600.¹

Traditional IRA Deduction Phase-Outs

You can always contribute to a traditional IRA, but if you’re also covered by a self-employed plan, the deduction phases out. For 2026 that phase-out runs from $81,000 to $91,000 for single filers and $129,000 to $149,000 for married filing jointly.⁶ Above those ranges the contribution is allowed but not deductible.

Roth IRA Income Limits

Roth eligibility depends on modified adjusted gross income. For 2026, single filers can make a full contribution below $153,000, with eligibility ending at $168,000. Married couples filing jointly can contribute fully below $242,000, with the phase-out ending at $252,000.⁶

The Backdoor Roth

Above the Roth limits, a two-step workaround still gets money into a Roth. Make a non-deductible contribution to a traditional IRA (there is no income limit on non-deductible contributions), then convert that IRA to a Roth. You report the non-deductible contribution on Form 8606, which tracks your basis so the same dollars aren’t taxed twice.¹¹ One catch: if you hold any pre-tax money in traditional, SEP, or SIMPLE IRAs, a pro-rata rule taxes the conversion proportionally across all your traditional IRA balances. Rolling pre-tax IRA money into a Solo 401(k) first can clear the way.

Spousal IRAs

If you’re married and your spouse has no earned income, you can fund a spousal IRA using your self-employment earnings. Each spouse gets their own account under the same $7,500 limit ($8,600 at 50 or older). The joint-filer Roth phase-out of $242,000 to $252,000 applies to both spouses’ Roth eligibility because it runs on combined income.⁶

Defined Benefit Plans for Very High Earners

If your net earnings run well above $300,000 and $72,000 isn’t enough, a one-person defined benefit plan (sometimes called a cash balance plan) can shelter dramatically more. The 2026 annual benefit limit is $290,000, and the contribution needed to fund that benefit is set by an actuary based on your age, expected returns, and target retirement date.¹² Older participants have fewer years to fund the promise, which justifies larger annual contributions.

A defined benefit plan can be paired with a Solo 401(k), but complexity and cost rise sharply. You’ll need an actuary annually, and skipping contributions in a lean year can create compliance problems. This works best for contractors with stable, high income who want to catch up aggressively.

Setup and Funding Deadlines

Missing a deadline is one of the easiest ways to lose a year of deductions.

Solo 401(k)

The plan must be formally adopted by December 31 of the tax year you want to contribute for, meaning the plan documents are signed. You must also make a written election to defer part of your compensation by December 31.³ The actual funding, both the employee deferral and the employer profit-sharing piece, can happen later, up to your tax filing deadline including extensions. For most sole proprietors that means October 15. When depositing, designate the employee deferral and the employer contribution as separate types; mixing them can create excess contribution problems.

SEP IRA

You can both establish and fund a SEP as late as the due date of your business tax return, including extensions.¹³ With an extension, that’s October 15.

Traditional and Roth IRAs

Contributions for a given tax year must be made by April 15 of the following year. No extension applies, even if you extended your return.

If You Contribute Too Much

Excess IRA contributions are hit with a 6% excise tax each year they remain. In a Solo 401(k), excess elective deferrals not corrected by April 15 of the following year can jeopardize the plan’s tax-exempt status. Running the numbers carefully, with software or a CPA, pays for itself.

Rolling Over an Old Employer Plan

If you left a W-2 job with a balance in a 401(k) or 403(b), you can roll those funds directly into a Solo 401(k) if the plan document allows incoming rollovers, which most prototype plans do.¹⁴ A direct trustee-to-trustee transfer avoids withholding. Take a distribution check instead and the old plan withholds 20%; you then have 60 days to redeposit the full amount, covering the withheld portion out of pocket.

Consolidating an old pre-tax IRA into a Solo 401(k) has a second benefit: it clears out the pre-tax IRA balances that would trigger the pro-rata rule on a backdoor Roth conversion.

What Changes If You Hire Employees

A Solo 401(k) is limited to businesses with no full-time employees other than the owner and spouse. If you hire employees who meet the plan’s eligibility rules, you must include them, and the plan loses its one-participant status. Elective deferrals then become subject to nondiscrimination testing, which can cap your personal contribution.⁴ Many owners convert to a safe harbor 401(k), which passes testing automatically in exchange for mandatory employer matching. Others switch to a SEP, which handles multiple employees easily but requires the employer to contribute the same percentage of compensation for every eligible employee. Planning the transition before you hire is easier than fixing it after.

Two Rules to Keep in Mind

Prohibited Transactions

You cannot borrow from an IRA, use IRA funds to buy property for personal use, sell your own property to your IRA, or pledge the account as loan collateral. These restrictions extend to transactions with your spouse, children, and parents.¹⁵ The consequence for an IRA violation is severe: the whole account is treated as distributed on January 1 of the year the violation happened, making the full balance taxable, plus a 10% early withdrawal penalty if you’re under 59½. Solo 401(k)s have a separate excise tax structure for prohibited transactions. Any creative arrangement involving your own business or family members deserves a tax professional’s review first.

Required Minimum Distributions

Pre-tax retirement money can’t sit forever. If you were born between 1951 and 1959, RMDs begin the year you turn 73. If you were born in 1960 or later, the starting age is 75 under SECURE 2.0. Your first distribution must be taken by April 1 of the year after you reach that age. Missing an RMD or under-withdrawing triggers a 25% excise tax on the shortfall, dropping to 10% if you correct it within two years. Roth IRAs have no RMDs during the owner’s lifetime, and Roth 401(k) accounts, including Roth Solo 401(k)s, lost their RMD requirement starting in 2024.

1
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
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Internal Revenue Service. Self-Employed Individuals – Calculating Your Own Retirement Plan Contribution and Deduction
3
Internal Revenue Service. Publication 560 – Retirement Plans for Small Business
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Internal Revenue Service. One-Participant 401(k) Plans
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Internal Revenue Service. Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits
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Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs
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Internal Revenue Service. Retirement Topics – Loans
8
Internal Revenue Service. One-Participant Plans More Than $250,000
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Internal Revenue Service. SEP Contribution Limits
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Internal Revenue Service. Retirement Plans FAQs Regarding SEPs
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Internal Revenue Service. Instructions for Form 8606
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Internal Revenue Service. Retirement Plans for Self-Employed People
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Internal Revenue Service. Simplified Employee Pension Plan (SEP)
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Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
15
Internal Revenue Service. Retirement Topics – Prohibited Transactions