What's the difference between SEP IRA and Solo 401(k) for self-employed?

SEP IRA allows up to 25% of net earnings (max $69K) as employer contributions only—simple setup but limits flexibility. Solo 401(k) allows employee contributions ($23,500) plus employer contributions (25% of compensation), enabling higher total savings and offering Roth options and loans. Solo 401(k) typically works better for high earners wanting maximum contributions.

Do freelancers pay more in self-employment tax than W-2 employees?

Yes. Freelancers pay both employer and employee portions of FICA: 15.3% (12.4% Social Security + 2.9% Medicare) vs 7.65% for W-2 employees. On $75K income, that's an extra $5,737 annually. However, you can deduct half of self-employment tax and potentially lower your effective rate through business deductions and retirement contributions.

Should freelancers make quarterly estimated tax payments for retirement savings?

Yes, you must make quarterly estimated tax payments if you expect to owe $1,000+ in taxes. However, SEP IRA and Solo 401(k) contributions reduce your taxable income, lowering quarterly payments. Make contributions throughout the year (or at year-end) to avoid underpayment penalties. SEP IRA contributions can be made until tax filing deadline (April 15 or October 15 with extension).

What retirement savings rate should freelancers target?

Aim for 20-25% of gross income to match employee total retirement savings (employee contribution + employer match). On $100K freelance income, save $20-25K annually. This accounts for missing employer matching and provides comparable retirement security. Start with 10-15% if needed, but increase as income grows. Remember: employees effectively save 9-12% with matching—you need double that.

Freelancer Retirement Gap Tool

See the 401(k) impact and calculate how much to save for retirement

Show this tool on your website

🏦

Freelancer Retirement Gap Tool

Discover the hidden cost of freelancing: missing employer 401(k) matching. This tool reveals how much you need to save to match employee retirement benefits and provides strategies to close the retirement gap.

🎯What This Tool Does

•
Compare freelance vs W2 retirement benefits
•
Calculate SEP IRA and Solo 401(k) contributions needed
•
Show the true cost of missing employer matching
•
Provide retirement planning strategies for freelancers

💡How to Use This Tool

1.
Enter your current freelance income and age
2.
Compare to equivalent W2 job with 401(k) matching
3.
See how much extra you need to save
4.
Get strategies to close the retirement gap

⚠️Important: The Hidden Cost of Freelancing

Freelancers miss out on employer 401(k) matching, which can be worth $3,000-$10,000+ annually. This tool shows you exactly how much extra you need to save to match employee retirement benefits.

Enable Smart Defaults

Get personalized default values based on your location, age, and income. All data is stored locally on your device.

Auto-fill calculator fields with realistic values
Region-specific tax rates and costs
Age and income-appropriate suggestions
Learn from your calculator usage

Privacy: No data is sent to our servers. Everything stays on your device.

Retirement Savings Gap

+$788,748

Ahead of W2 retirement by 109.2%

Quick Scenarios

Your Details

Current AgeYour current age

Enter your current age in whole years.

2265

Retirement AgeWhen you plan to retire

Typical retirement ages range 60-67.

5575

Investment Return RateExpected annual return on investments

Historical stock market averages ~7% after inflation.

4.00%12.00%

W2 Employee Scenario

W2 SalaryYour W2 employee salary

Use a comparable role for W2 comparison.

$40,000$200,000

Your 401(k) Contribution= $5,100/year

Typical employee deferrals are 3-10%.

0.00%15.00%

Employer Match= $2,550/year free money

Ask HR for your official match policy.

0.00%10.00%

Freelance Scenario

Freelance IncomeYour total freelance income

Include net revenue before retirement contributions.

$40,000$250,000

SEP IRA ContributionMax: $25,000 (25% of income)

IRS SEP IRA limit is the lesser of $66k or 25% of compensation (2025).

$0$50,000

Solo Roth/401(k) ContributionMax: $23,000

Employee elective deferral limit is $23k (+$7.5k catch-up) in 2025.

$0$35,000

Retirement at Age 65

W2 Employee Path

Your Contributions$153,000

Employer Match$76,500

Future Value$723k

Freelance Path

Total Contributions$480,000

Employer Match$0 (self-employed)

Future Value$1511k

Growth Over Time

Understanding the Freelancer Retirement Gap

Freelancers face a significant retirement planning challenge: missing employer 401(k) matching contributions. According to Bureau of Labor Statistics data, 67% of private industry workers have access to employer-sponsored retirement plans, with many receiving matching contributions.

The Employer Matching Advantage

• Typical 401(k) match: 3-6% of salary (often 50% or 100% match)
• Annual value: $3,000-$10,000+ for median earners
• Compound growth: $100,000+ over 20 years at 7% returns
• Tax benefits: Pre-tax contributions reduce current year taxes

Source: Employee Benefit Research Institute

Freelancer Retirement Options

SEP IRA

• Up to 25% of net earnings (max $69,000 in 2024)
• Easy setup, minimal paperwork
• No employee contribution limits
• Tax-deductible contributions

Solo 401(k)

• Employee + employer contributions
• Higher contribution limits than SEP IRA
• Roth option available
• Loan provisions available

Source: IRS Self-Employed Retirement Plans

The True Cost of Missing Employer Matching

Missing employer 401(k) matching is one of the biggest hidden costs of freelancing. According to Employee Benefit Research Institute data, the average employer match is 4.7% of salary, which can amount to thousands of dollars annually.

Real-World Example

Annual Salary:$75,000

Typical 401(k) match (4.7%):$3,525/year

20-year value at 7% returns:$145,000+

Freelancer must save extra:$3,525/year to match

This doesn't include the additional 3-6% that employees typically contribute to get the full match.

The Compounding Impact

Missing employer matching has a compounding effect over time. A freelancer earning $75,000 who doesn't save the equivalent of employer matching could miss out on:

• 10 years: $48,000+ in lost retirement savings
• 20 years: $145,000+ in lost retirement savings
• 30 years: $350,000+ in lost retirement savings

Source: SEC Compound Interest Calculator

Strategies to Close the Retirement Gap

Freelancers can close the retirement gap through strategic planning and disciplined saving. The key is to treat retirement savings as a fixed business expense, not an optional afterthought.

Immediate Actions

1.
Set up SEP IRA or Solo 401(k) immediately
2.
Automate retirement contributions (treat like a business expense)
3.
Increase rates to account for retirement savings
4.
Track retirement savings as a business metric

Long-term Strategies

•
Build emergency fund (6-12 months expenses)
•
Diversify income streams to reduce risk
•
Consider part-time W2 work for benefits
•
Plan for healthcare costs in retirement

Tax Optimization Strategies

Maximize pre-tax contributions: Use SEP IRA or Solo 401(k) to reduce current year taxes. IRS Self-Employed Plans
Consider Roth options: Pay taxes now for tax-free growth in retirement
Health Savings Account (HSA): Triple tax advantage for healthcare costs. IRS HSA Publication
Tax-loss harvesting: Offset investment gains with losses. IRS Capital Gains

Frequently Asked Questions

Common questions about the Freelancer Retirement Gap Tool

The average employer match is 4.7% of salary, worth $3,525 annually on a $75K income. Over 20 years at 7% returns, that's $145,000+ in lost retirement savings. Freelancers must save this amount on top of their own contributions to match employee retirement benefits, or charge 5-10% higher rates to compensate.

📚 Tax Rate Sources

Federal Income Tax Brackets (2025):

Ordinary income is taxed at graduated rates from 10% to 37% based on filing status and income level.
→ Source: IRS - Federal Income Tax Rates and Brackets

Capital Gains Tax Rates (2025):

• Short-term capital gains (assets held ≤1 year): Taxed at ordinary income rates (10-37%)
• Long-term capital gains (assets held >1 year): 0%, 15%, or 20% based on income
→ Source: IRS Topic 409 - Capital Gains and Losses

State Tax Rates:

State income tax rates vary from 0% (no state income tax) to 13.3% (California top rate).
→ Source: Tax Foundation - State Income Tax Rates

Qualified Dividends:

Qualified dividends are taxed at the same preferential rates as long-term capital gains (0%, 15%, or 20%).
→ Source: IRS Topic 404 - Dividends

Note: Tax laws change frequently. These rates are current as of 2025. Always consult a tax professional for personalized advice.

Explore More Tools

Continue your financial journey with these related calculators

career-income

Career Income Optimizer

Comprehensive income analysis: real hourly wage after all costs, inflation-adjusted salary tracking, and tax bracket impact on raises

Try it now

career-income

Freelancer Financial Calculator

Calculate your required freelance hourly rate after taxes and expenses. Compare contractor vs employee income.

Try it now

career-income

Side Hustle ROI Calculator

Calculate side hustle profitability after taxes, expenses, and time investment

Try it now

⚠️ Important Disclaimer

This Freelancer Retirement Gap Tool provides estimates for educational and informational purposes only. Actual results may vary significantly based on individual circumstances, market conditions, regulatory changes, and other factors beyond the scope of this calculator.

The calculations and projections provided are based on assumptions and historical data that may not reflect future performance.Past performance does not guarantee future results.

This tool is not financial advice, tax advice, legal advice, or investment advice. For personalized guidance tailored to your specific situation, please consult with qualified professionals including:

Certified Financial Planner (CFP)
Certified Public Accountant (CPA) for tax matters
Licensed attorney for legal matters
Registered Investment Advisor (RIA) for investment decisions

Data Accuracy: All data sources, statistics, and rates were verified as accurate as of October 2025. Tax rates, market conditions, and other financial data change over time. Always verify current rates and consult official sources.

No Warranties: While we strive for accuracy, we make no warranties or guarantees regarding the accuracy, completeness, or reliability of any information provided. Use this tool at your own risk.