In 2024, a freelancer with no employees could put $69,000 into a solo 401(k), and the same freelancer could put the same $69,000 into a SEP IRA without hitting any difference in the contribution ceiling. Guides move to the next topic because the top-line number matches. But the two accounts diverge once you add marketplace health subsidies and hiring plans to the math.
Most plan comparisons stop at the contribution formula. A 45-year-old designer with no employees can defer $23,000 in a solo 401(k) plus profit sharing, or contribute 25% of net earnings to a SEP IRA. The ceilings look identical. The day-to-day impact on cash flow and health costs is not.
The four accounts freelancers actually use
Four accounts handle most self-employed retirement savings. The numbers below are 2024 IRS limits.
- Solo 401(k): $23,000 employee deferral plus $7,500 catch-up if 50 or older, plus employer profit sharing up to 25% of compensation, total $69,000. Stops working if you hire an employee other than a spouse.
- SEP IRA: Employer contribution of up to 25% of net earnings, total $69,000. If you hire employees, you must cover them on the same terms.
- SIMPLE IRA: $16,000 employee deferral plus $3,500 catch-up if 50 or older, plus a 3% match or 2% nonelective contribution. Lower ceiling, less paperwork.
- HSA: $4,150 self-only, $8,300 family, $1,000 catch-up if 55 or older. Requires an HSA-eligible high-deductible health plan.
The highest contribution number does not tell you which account to fund first. A freelancer with variable income and health premiums that shift every year needs a plan that gives flexibility, not a trophy number.
Health premiums and MAGI are the missing variable
Marketplace premium tax credits use modified adjusted gross income, MAGI for short. Contributions to a traditional solo 401(k), SEP IRA, or HSA lower MAGI. Roth contributions do not. A lower MAGI can mean a larger premium tax credit, which means the retirement contribution you make this year can directly cut what you pay for health coverage this year.
The American Rescue Plan rules, extended through 2025, cap benchmark Silver plan premiums at 8.5% of household income for marketplace enrollees. A deductible contribution that lowers your MAGI also lowers the dollar amount tied to that 8.5% cap. The exact savings vary by county, family size, and income. The direction does not.
An HSA does two jobs at once
For a freelancer on an HSA-eligible high-deductible plan, the HSA carries a tax combination no retirement account matches. Contributions go in pretax. Growth is tax-free. Withdrawals for qualified medical costs come out tax-free. After 65, non-medical withdrawals are taxed like a traditional IRA, with no penalty.
Fidelity's 2023 estimate put retirement healthcare costs for a 65-year-old couple at $157,500. That is a big number. An HSA funded steadily during freelancing years builds a dedicated fund for it. Many freelancers would do better to max the HSA before adding to a SEP or solo 401(k).
Cash flow and hiring futures
Solo 401(k) employee deferrals must be elected by December 31. SEP IRA and HSA contributions can wait until the tax filing deadline. Freelancers with uneven income need that extra time. A slow month in December can change how much you can afford to set aside.
The solo 401(k) also has a shelf life. Hire a full-time employee and the plan must be amended or terminated. A SEP IRA or SIMPLE IRA covers employees, but you have to contribute for eligible employees on the same terms. If you plan to hire within two years, the solo 401(k)'s higher ceiling becomes a compliance step you will undo.
A practical order for most freelancers
For a freelancer with no employees and no near-term hiring, a useful sequence is HSA first if eligible, traditional solo 401(k) next to lower MAGI, then a Roth IRA if income allows. For a freelancer who expects to hire, a SEP IRA is the safer default. The best plan lowers this year's health costs while building next year's assets.
This article uses 2024 IRS figures. Limits change each year, so check the current-year numbers before acting.
This article is for general information only and is not tax, legal, or medical advice. Freelancers should consult their own advisors.