Compare retirement plans for a self-employed business, and you will hear about contribution limits and tax treatment. Nobody mentions the health insurance column.
A retirement contribution lowers your modified adjusted gross income (MAGI). That lower number feeds two calculations. ACA premium tax credits phase down as income rises. Medicare Part B and Part D premiums carry a surcharge at higher incomes. Pick the wrong plan, and you lose premium tax credits or trigger a Medicare surcharge. Pick the right one, and your retirement account and your health premium move in the same direction.
Medical bills remain a leading cause of personal bankruptcy. About 1 in 3 Americans skip care or prescriptions because of cost. At the same time, 25% of adults 50 and older have zero retirement savings. A retirement contribution that lowers health premiums addresses both problems at once.
Four Plans, One Missing Column
Advisors hand out comparison charts built around contribution limits and tax treatment. The column that changes the total result is the MAGI effect. The numbers reflect 2025 IRS limits.
- SEP IRA: Employer contribution only. A sole proprietor can contribute 20% of net earnings after one-half of self-employment tax. The deduction lowers MAGI. No annual Form 5500.
- Solo 401(k): Employee deferral of $23,500 for 2025, plus $7,500 catch-up at 50 or older, plus employer profit sharing. Combined cap is $70,000. Both parts lower MAGI. File Form 5500-EZ when plan assets exceed $250,000.
- SIMPLE IRA: Employee deferral of $16,500 for 2025, plus $3,500 catch-up at 50 or older, plus a 3% match or 2% nonelective contribution. The deduction lowers MAGI. No Form 5500.
- Cash balance plan: Defined benefit formula sets the contribution by actuarial target. The deduction can be larger than the other three. Requires Form 5500 and actuarial work each year.
How the Deduction Changes Premiums
All four plans use the same mechanism. You deduct the contribution. The deduction lowers MAGI. ACA premium tax credits phase down as income rises, so a lower MAGI can increase the credit.
The self-employed health insurance deduction works the same way. If you have net profit and no access to employer coverage, you can deduct premiums for yourself, your spouse, your dependents, and children under 27. That deduction also lowers MAGI.
The result: your retirement contribution and your health premium deduction combine to move the income measure used for subsidies.
Medicare adds a second layer. Social Security uses MAGI from two years prior to set Part B and Part D premiums. A large SEP or cash balance contribution in that look-back year can avoid the income-related monthly adjustment. Retirement plan charts rarely show this column.
The HSA Sits Next to the Chart
If you buy a qualifying high-deductible health plan, add a fifth account. For 2025, self-only HSA contributions cap at $4,300. Family coverage caps at $8,550. Account holders 55 and older add $1,000. HSA contributions lower MAGI. Qualified medical withdrawals are not taxable. After 65, non-medical withdrawals are taxable but not penalized.
Selection Sequence
- No employees and want the largest contribution: start with a Solo 401(k).
- Simplest setup and no Form 5500, with lower contribution limits: use a SEP IRA.
- A few employees and low administration: use a SIMPLE IRA.
- Age 50 or older, high income, behind on retirement: ask an actuary about a cash balance plan.
- Qualifying HDHP: max the HSA before or alongside the retirement contribution.
Where WellthCare Fits
WellthCare™ is built for W-2 employees through an employer's Section 125 plan. Self-employed owners fall outside that line. If your business sponsors a WellthCare Plan, your W-2 employees can participate. As the owner, you cannot.
If you are self-employed, compare your retirement plan options with your health premium in view. The plan that looks best on a contribution chart is not always the one that keeps your total health and retirement costs lowest.
This article is for general information only and is not legal, tax, or medical advice. Consult your own advisors.