401(k)s for the Side Hustlers & Self-Employed in 2025: How to Save $20,000+ on Your Taxes

Being self-employed is, candidly, my Millennial dream come true.

In my ideal self-employed day, I rise at 7 a.m. (instead of my current 5:30 a.m. wake-up call) and pad around the kitchen in an impossibly chic matching silk pajama set. After an hour-long morning routine that consists of matcha lattes, transcendental meditation, and a leisurely stroll around the block, I finally sit down at my Pinterest desk to put in a few light hours of reading and writing before retiring to the den for my afternoon nap.

Of course, this fantasy produces a minimum of $1,000 per day, my hair is shinier, my teeth are whiter, and I am a happier, less stressed version of me.

For those of you who are self-employed, I’m sure you’re having a hard time reading through your twitching left eye and uncontrollable laughter.

That’s obviously not what self-employment actually looks like.

Two obvious gripes are most common among the self-employed people I talk to: Healthcare and access to retirement accounts.

While I don’t have any answers for you on the healthcare front, I actually think the self-employed have a distinct advantage when it comes to tax-advantaged retirement investing.

While the corporate robots (read: me) get hot and bothered about a dollar-for-dollar match and the ability to contribute up to $23,500 per year (2025) to our 401(k)s, the savvy self-employed of the world are low-key trouncing us with their ability to contribute to pre-tax investment accounts.

Am I talking about the Roth IRA?

No! Of course not. At $7,000 per year, the Roth IRA is a great (post-tax) vehicle for both W-2 employees and the self-employed (and if you don’t have one, I’d go open one immediately as long as you’re under the income limit of $165,000 per year; if you’re not, I’ve got a loophole-frenzied guide to contributing to a backdoor Roth IRA here).

Takeaways, upfront:

I still think you should read the post because it gets into the granular tax details of all this shit, but the main takeaway I had was this:

• If you’re truly self-employed (no income from W-2 jobs or access to employer-sponsored plans), you’re probably better off with the Solo 401(k).

• If you’re self-employed AND have a “regular” full-time job with a 401(k) (in other words, a side hustler), the SEP IRA is probably going to be the easier route.

Introducing: The SEP IRA and Solo 401(k)

I honestly felt like the personal finance world had been holding out on me when I found out about these magnificent accounts. Let’s focus on the SEP IRA first, because it’s (generally) easier to set up.

SEP IRAs

The maximum you can contribute to a SEP IRA is—are you ready for this? I hope you’re sitting down—$70,000 per year in 2025.

The catch is that, in order to contribute the full $70,000, it must represent no more than (what works out to roughly) 20% of your net self-employment income. In other words, in order to contribute the full $70,000, you’d have to make roughly $350,000 in net self-employment income.

For example, if you make $100,000 per year in 1099 income, the most you can contribute is $20,000 (20%).

Still, this is a hell of a lot better than the $23,500 employee contribution limit that the Corporate Robot Squadron gets (Chief Corporate Robot, reporting for duty! salutes).

Technically, a SEP IRA has an “employer-only contribution” setup, but that’s the loophole of working for yourself. You are both the employer and the employee. You’re contributing 20% of your net 1099 income as the “employer” to yourself as the “employee.” Weird, right?

The super-extra dope thing about that $70,000 (if you’re a high-roller making the full $350,000 per year) is that it’s tax-deductible, which means you don’t have to pay taxes on it this year. With an income of $350,000, you’d be paying 35% on income over $250,526 in 2025, which means a full $70,000 contribution to a SEP IRA would mean around $24,500 in tax savings—that is, $24,500 in taxes that you’d no longer owe this year, because you’re shielding that income and deferring taxation within your SEP IRA.

Increíble! To really drive the point home, you could take that $24,500 you’re saving and invest it in a taxable investing account to double your fun.

You’ve got until the filing deadline to make your contributions, which means (in a normal year) you’ll be contributing from April 15 to April 15 (i.e., tax season to tax season).

This means, if you’re reading this in March of 2026 and you haven’t filed your taxes yet, you can open a SEP IRA, make contributions, and deduct it before you file to save yourself some tax dollars for the 2025 #TaxSzn.

One weird tax caveat that I don’t all-the-way-understand, but mostly get it (sue me!)

Technically, it’s not quite as baller as it sounds, because you’ve got to pay your self-employment taxes on your net income (profits – expenses) before you can calculate your 25% contribution. That is: It’s not 25% of your gross self-employment income (the money on those #checks), but closer to 20% of your net income less half your self-employment taxes. plays tiny violin and begrudgingly hands back some of my Stripe funds from spreadsheet sales

What if you’re a big side hustler and you’ve got a 401(k) through your employer and a side business?

First of all, I’d love for you to flip your hair and smack your own ass as I congratulate you on being the Ultimate Millennial Hustle Culture Workhorse! We love to see it. From one achievement-obsessed Millennial to another, I salute you (lots of weird military references in this post; I’m sorry).

And beyond all the hair-flipping and ass-slapping, you’re in luck!

You can still open and contribute to a SEP IRA even if you’ve already got an employer-sponsored 401(k) through traditional, full-time work.

The same rules more or less apply; you’re the employer in the SEP IRA situation, so you’re making employer contributions to yourself as the employee.

You could theoretically max out your 401(k) with your regular salary at $23,500 per year, then turn to your SEP IRA and contribute 20% of your net self-employment income and defer that as well (defer = make it tax-deductible and “hide” it from the federal government).

But don’t take it from me – take it from the good ole’ boys at the IRS in this screenshot:

How to open your SEP IRA

Well, you know what I’m going to say: Betterment offers one. They’ll walk you through the process, including providing the IRS form you need to fill out and keep for your records in order to be in the clear.

A little fuzzy on how much, exactly, you can contribute? The IRS provides this “calculator” (you can probably guess why I’m using quotation marks if you’ve ever done your taxes before) that’ll help you figure it out down to the penny.

I’ll be honest: I tried to follow their instructions, and I found it pretty confusing. I’m a big fan of the 80/20 rule; that is, 20% of your effort drives 80% of the results. Put another way: Get the most juice for the least squeeze.

Rather than trying to figure out the exact amount I could contribute, I’d probably play it safe and contribute around 20% of my net pay and call it a day. (If you aren’t as comfortable playing fast and loose like me, please, for the love of God, hire an accountant.)

Legally, you don’t need an EIN to open a SEP IRA, but I’ve read that most brokerage firms require it (more on EINs below, because they are required for Solo 401(k)s.

So where does the Solo 401(k) come in?

Solo 401(k)s work a little bit differently, and are definitely better for truly self-employed people than “traditionally” employed people with side hustles.

With a Solo 401(k), you make contributions as an employee and an employer (vs. just as the employer, as in the SEP IRA) for a total contribution of $70,000 (just like the SEP IRA) for 2025.

You can contribute (please read this in a robot voice) up to $23,500 as the employee, and then an additional employer contribution of up to 20% of your net income, less half the self-employment taxes and your $23,500 contribution (that’s right—you have to subtract the $23,500 from your net income in addition to the taxes; they really get you both ways).

Careful if you’re already contributing the maximum to your 401(k) plan at work

The hairy thing for side hustlers with the Solo 401(k) is that 401(k) contribution limits are determined per person, not per plan—which means if you’re already contributing $23,500 to your employer 401(k), you can’t also contribute $23,500 to your Solo 401(k) as an employee (this is known as the “elective deferral”).

They make more sense for self-employed with only self-employment income, since your $23,500 contribution is irrespective of your total net income less all the tax mumbo jumbo (in other words, it doesn’t matter how much you make; as long as you make more than $23,500, you can contribute $23,500). Compare that to the SEP IRA, where in order to contribute $23,500, you’d have to make more than $117,500 in net business income.

So your employee contributions can go up to $23,500, but your “employer” contributions can still equal that 20% chunk of what’s left—which means if you can manage to contribute more than $23,500 of your income, you can (and should) up to 20% of the “net income minus half self-employment taxes minus $23,500 contribution.”

Let’s do an example, because I can feel your eyes rolling into the back of your head

The Solo 401(k) makes more sense for the truly self-employed unless said person earns more than $350,000 in self-employment income per year. Here’s why:

• Because the SEP IRA is structured to only allow “employer” (read: you) contributions of up to 20% of your net income, in order to contribute the maximum allowable ($70,000 per year), you’d need to make 5x that (roughly, in order for 20% of your net business income to equal $70,000), remember? That’s $350,000.

• Since the Solo 401(k) allows you to contribute $23,500 as the “employee” and 20% of whatever’s left as the employer (also you!), you have the opportunity to double-dip.

  • Consider an example of someone who makes $150,000 in net business income.

  • 20% of $150,000 is $30,000. That’s pretty good, right? That’d be roughly their allowable contribution in a SEP IRA.

  • But what if they chose a Solo 401(k)? Then, they can contribute their initial employee contribution of $23,500, and then 20% of whatever’s left.

    • $150,000 – $23,500 = $126,500, and 20% of $126,500 (or their allowed “employer match” as their own employer) is $25,300.

    • $23,500 (their “employee” contribution) + $25,300 (their “employer” contribution) = $48,800.

  • The SEP IRA would only allow them to contribute $30,000, whereas the Solo 401(k) allowed $48,800, simply because of the way the account contributions are structured.

*All examples are approximate.

The only reason the SEP IRA makes more sense at a net business income of $350,000 or above is because 20% of that net income is $70,000 maximum. In pretty much every other case, the Solo 401(k) will allow for more money to be contributed.

Now, that being said, the Solo 401(k)s:

1. Do have higher administrative burdens from a paperwork standpoint

2. Are really only tenable for people who are fully self-employed, as your employer 401(k) will make it function just like a SEP IRA

Other fun tax caveats because the federal government loves to make things complicated

You need an EIN to open a Solo 401(k), which is the number you get when you start a business and register it legally.

While your SEP IRA contributions run April to April, Solo 401(k) employee contributions have to be made by December 31 (in other words, they run on a calendar-year basis), but employer contributions can be made up until the tax filing deadline of April 15. Unlike the SEP IRA, Betterment and other roboadvisors don’t offer a Solo 401(k) and there are a few more forms involved, but I think most major brokerage firms (other than Vanguard, which recently sold its Solo 401(k) program to Ascensus) do offer them.

If I ever leave the workforce and become a full-time self-employed person, I’ll open one and write about the experience for you. Is that enough incentive to go buy a Wealth Planner?

Let’s return to our order of operations

You may be wondering now how the f*** to incorporate this new blitzkrieg of information into everything you already know. Let’s create a funnel, shall we? This is the order you should be contributing to your investment accounts. If I list anything that you don’t have (read: can’t have), just skip to the next thing. Easy!

1. Employer-sponsored 401(k) [full-time corporate employee with a side hustle] or Solo 401(k) [full-time self-employed] up to $23,500

2. Roth IRA [everyone!] up to $7,000 per year

3. SEP IRA [full-time corporate employee with a side hustle] up to ~20% of your net side hustle income, less half self-employment taxes up to $70,000 per year

4. Taxable investing account [regular ole’ investing with no fancy stipulations or limits, but the highest tax burdens, called “General Investing” in Betterment]

Easy, right? Just go out and earn hundreds of thousands of dollars and master tax law, and you’re good!

(Just kidding, but we are all in this together, figuring it out one tax loophole at a time.)