Retirement does not always mean the end of earning. Many people leave a career only to pick up consulting work, freelance projects, or a small business, and that income opens a door many do not realize exists. Self-employment earnings can be funneled into tax-advantaged retirement accounts built specifically for the self-employed, letting a semi-retired person continue to shelter money from current taxes.
Two accounts built for self-employment
The Internal Revenue Service maintains retirement-account options aimed squarely at people who work for themselves. Its overview of retirement plans for the self-employed describes several, and two stand out for a semi-retired individual with side income: the Simplified Employee Pension, known as a SEP-IRA, and the one-participant 401(k), often called a solo 401(k).
A SEP-IRA is prized for its simplicity. It is easy to set up, has minimal paperwork, and allows contributions based on a percentage of self-employment income. The IRS description of SEP contribution limits explains that the amount is tied to earnings, up to an annual cap the agency sets, which lets someone with modest side income contribute a meaningful share of it.
A solo 401(k) suits a self-employed person with no employees other than a spouse. As the IRS explains in its guide to one-participant 401(k) plans, the account holder can contribute both as the employee and as the employer, which can allow a larger total contribution at a given income level than a SEP. That dual role is the solo 401(k)’s defining advantage.
Free for readers: Want plain-English help keeping more of your money in retirement? The free Retirement Shield newsletter covers scams, benefits, and money you’re owed, a couple times a week. Subscribe free.
The tax advantage in retirement
The appeal for a semi-retired earner is the tax treatment. Contributions to a traditional SEP-IRA or solo 401(k) are generally deductible, reducing taxable income in the year they are made, and the money grows tax-deferred until it is withdrawn. For someone already drawing Social Security, a pension, or investment income, sheltering a chunk of consulting earnings can lower the current tax bill in a year that might otherwise push income higher.
That said, the interaction with required minimum distributions and other retirement income deserves attention. Traditional contributions are taxed later when withdrawn, so the strategy shifts income to future years. Some savers prefer a Roth version where available, paying tax now for tax-free withdrawals later. Which approach makes sense depends on a person’s current and expected future tax rates, a calculation worth running or discussing with a tax professional.
Choosing between them
The right account depends on the situation. A SEP-IRA wins on ease: it can often be opened and funded quickly, with a contribution deadline that extends to the tax-filing deadline, including extensions, which gives flexibility to decide the amount after the year ends. For a person who wants minimal administration, it is hard to beat.
A solo 401(k) can allow a larger contribution at lower income levels because of the employee-plus-employer structure, and some versions permit a Roth option and loans. It generally involves more setup and, once the account grows past a threshold, an annual information filing. For a self-employed person aiming to maximize contributions from a given amount of income, the solo 401(k) frequently comes out ahead, at the cost of a bit more complexity.
Making it work
Setting either account up is straightforward through most brokerages and retirement-plan providers, which handle the paperwork and offer investment choices. The key inputs are the self-employment income, the desired contribution, and whether simplicity or maximum contribution matters more. Because the contribution limits and deduction rules carry specifics that change from year to year, confirming the current figures with the IRS or a tax adviser before contributing keeps the strategy on solid ground.
For a retiree earning even part-time self-employment income, the broader lesson is that the ability to save in a tax-advantaged account does not end at retirement. Continuing to shelter a portion of that income can lower current taxes, keep savings growing, and stretch a nest egg further, all from work a person may be doing simply because they enjoy it.
How this fits with required withdrawals
A semi-retired saver using these accounts should keep the bigger tax picture in view. Traditional SEP-IRA and solo 401(k) contributions are deductible now but taxed later as withdrawals, and balances in these accounts are eventually subject to required minimum distributions once a person reaches the applicable age. For someone already taking distributions from other retirement accounts, adding more tax-deferred savings shifts income into future years, which can be an advantage or a drawback depending on where tax rates land.
This is why the choice between a traditional and, where available, a Roth version of the account matters. Paying tax now on a Roth contribution in exchange for tax-free withdrawals later can make sense for a person who expects higher future income or wants to avoid swelling future required distributions. Weighing current versus expected future tax rates, ideally with a tax professional, guides that decision.
Getting started
Opening a SEP-IRA or solo 401(k) is straightforward through most brokerages and retirement-plan providers, which handle the setup and offer a range of investments. The key inputs are the amount of self-employment income, the desired contribution, and whether simplicity or maximum contribution matters more. Because the contribution limits and deduction rules change periodically, confirming the current figures through the Internal Revenue Service’s resources for the self-employed before contributing keeps the amount within bounds. The broader lesson is that earning income after leaving a career, even part-time, preserves the ability to save in a tax-advantaged account, letting a retiree keep lowering current taxes and growing savings from work they may be doing simply because they enjoy it. Confirming the current contribution and deduction figures before funding the account, and choosing between the traditional and Roth versions based on expected future tax rates, keeps the strategy on solid ground and tailored to the individual’s circumstances.
Free for readers: One number can cost or save you hundreds a month in retirement. The free Retirement Shield newsletter surfaces the ones worth knowing. Sign up free.
This article was researched and drafted with AI assistance and reviewed against the linked primary sources.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
