Retirement Accounts Without an Employer Plan

Why this matters

Plenty of small shops offer no retirement plan at all, and plenty of techs earn part of their income on the side as independent contractors. Neither situation stops you from saving for retirement with real tax advantages; it just means nobody sets it up for you, nobody deducts it from your check, and nobody adds a match. The accounts available to you are better than most techs assume, especially once side income is in the picture, and the mistakes that cost money (the wrong account type, a missed deadline, a contribution limit counted twice) are all avoidable with an hour of setup.

This is not personal financial or tax advice. The rules below are federal and current as of 2026; contribution limits are indexed every year, so this article names them without figures. Check the IRS pages listed at the end for this year's numbers.

The case this article follows

Each step below is applied to one tech as it goes, so the method and the example stay side by side. Dana is a W-2 plumber at a seven-person shop with no plan. Dana also does side jobs on weekends, paid as an independent contractor. Every amount is in W, Dana's weekly W-2 gross pay: the W-2 job pays 52 W a year, and the side work nets 8 W a year of profit after expenses. Dana is single, in the 12 percent federal bracket, and wants to save 10 percent of everything earned: 10 percent of 60 W, or 6 W a year.

Step 1: Confirm there is no plan, and check for a state program

Ask the office in writing whether the shop offers any retirement plan, including a SIMPLE IRA, which small employers often use and which techs sometimes do not know they are eligible for. Why: a plan you are eligible for changes two things later: your traditional IRA deduction, and whether your 401(k) contribution limit is already partly used.

Then check your state. A growing number of states require employers that offer no plan to enroll employees in a state-run auto-IRA program; California, Oregon and Illinois were among the first, with more since. These programs typically default you into a Roth IRA funded by payroll deduction, and you can usually change the amount or opt out. A state auto-IRA counts against the same annual IRA limit as any IRA you open yourself.

For Dana: the shop confirms no plan of any kind, and Dana's state has no auto-IRA mandate for a shop that size. Dana is on their own.

Step 2: Choose between a traditional and a Roth IRA

Both are individual retirement accounts you open yourself at a bank or brokerage. The difference is when the tax is paid.

• Traditional IRA: contributions may be deductible now, growth is tax-deferred, and withdrawals in retirement are taxed as income. If neither you nor your spouse is covered by a workplace plan, the deduction is allowed in full at any income. If you are covered, or your spouse is, the deduction phases out over an income range the IRS indexes.
• Roth IRA: no deduction now, but qualified withdrawals in retirement are tax-free, growth included. Eligibility to contribute phases out above an indexed income limit.

The usual rule of thumb: in a low bracket now (an apprentice, a slow year, a part-year layoff), Roth tends to win, because you pay tax at today's low rate. In a high bracket now, traditional tends to win. Many techs split the difference. You can contribute only from earned income, wages or self-employment profit, and no more than you earned. Contributions over the limit draw a 6 percent excise tax every year they stay in the account (IRC 4973).

One trap ahead: opening a SEP or solo 401(k) for side work, as in Step 3, makes you an active participant in a workplace plan for IRA purposes, which can phase out the traditional IRA deduction. A Roth IRA is unaffected.

For Dana: in the 12 percent bracket, with years of rising pay ahead, Dana picks a Roth IRA. For illustration, say the current IRA annual limit works out to about 4.0 W at Dana's pay; check the real figure against your own weekly gross. That covers 4.0 W of Dana's 6 W goal, leaving 2.0 W.

Step 3: If you have side income, add a self-employed plan

1099 income (self-employment profit reported on Schedule C) opens two more accounts. Both are set up by you as the "employer" of your side business.

• SEP-IRA: the business contributes a percentage of your earnings, up to 25 percent of compensation for an employee, which works out to about 20 percent of net self-employment earnings for a sole proprietor, because the calculation first subtracts half your self-employment tax and then the contribution itself (IRS Publication 560 has the worksheet). Simple to open, no annual filing, all contributions are traditional (pre-tax) unless your provider offers the newer Roth SEP option.
• Solo 401(k) (also called a one-participant 401(k)): you contribute as the employee, up to 100 percent of net earnings capped at the IRS annual deferral limit, and as the employer, the same roughly 20 percent a SEP allows. Often offers a Roth option for the employee part. More paperwork, and once plan assets pass a threshold the IRS sets, an annual Form 5500-EZ is due. Only available if the side business has no employees other than a spouse.

The rule that trips people up: the employee deferral limit is per person across every 401(k) and 403(b) you participate in that year, not per plan. If your W-2 job later adds a 401(k) and you defer there, that same limit is shared with your solo 401(k) employee deferrals. The employer-side contribution to a solo plan for an unrelated business is counted separately.

For Dana, the SEP arithmetic. Self-employment tax is figured on 92.35 percent of net profit: 92.35 percent of 8 W is 7.388 W. At 15.3 percent, the self-employment tax is 1.130 W, and half of that, 0.565 W, comes off: 8 W minus 0.565 W leaves 7.435 W of net earnings. The SEP maximum is 20 percent of 7.435 W, or 1.487 W. That is short of the 2.0 W Dana still needs, by 2.0 minus 1.487, or 0.513 W.

The solo 401(k) arithmetic. As the employee, Dana can defer up to the lesser of 7.435 W of net earnings or the annual deferral limit, which on side earnings this size is the net earnings figure. The 2.0 W gap fits easily inside 7.435 W. Dana opens a solo 401(k), elects Roth for the employee deferral to match the Roth IRA choice, and puts the 2.0 W in as employee contributions. No employer contribution is needed to hit the goal.

Where this flips: if Dana's side profit were large enough that the employer-side 20 percent alone covered the gap, a SEP would do the job with less paperwork. On small side income, the solo 401(k)'s employee deferral is what makes room.

Step 4: Put the deadlines on a calendar

• IRA (traditional or Roth): contributions for a tax year can be made until your federal filing deadline the following spring, usually mid-April, not extended by filing an extension. Tell the provider which year a contribution is for.
• SEP-IRA: can be opened and funded until the business's filing deadline, including extensions.
• Solo 401(k): the rules on when the plan must be established, and when an employee deferral election must be made, were loosened by the SECURE Act and SECURE 2.0, particularly for a sole proprietor's first plan year. Confirm the current deadlines in IRS Publication 560 or with a tax preparer before relying on a late setup.

Why this matters: the IRA deadline cannot be extended, and a missed year of IRA room is gone permanently.

For Dana: Dana opens both accounts in March, puts this year's contributions on the calendar for the following April 15, and plans to finish well before.

Step 5: Automate it to fit how you are paid

For W-2 pay, set an automatic transfer to the IRA on each payday. For side income, decide a fixed split for every side payment the day it lands: tax set-aside first, then the retirement contribution, then what you keep. For seasonal pay, nothing requires even contributions across the year. Contribute more in peak months, less in slow ones, but fill your season reserve before raising contributions; retirement money should not be what carries you through February. See related: Building an Emergency Fund on Seasonal Income.

For Dana: 4.0 W a year to the Roth IRA over 52 paydays is 0.077 W per week, about 7.7 percent of each weekly gross, set as an automatic transfer. On side work, 8 W of profit funding 2.0 W of solo contributions is 25 percent of each side job's profit, moved the same day it is paid, after the tax set-aside. See related: Filing Quarterly Estimated Taxes on Side Income.

Step 6: Check for the Saver's Credit

Lower and moderate earners can get a federal tax credit for retirement contributions (IRC 25B), worth a percentage of what you contribute, with the percentage falling as income rises over indexed thresholds. Under SECURE 2.0 it is scheduled to become a Saver's Match deposited into your retirement account starting with tax year 2027. Tax software asks the questions; make sure it does.

For Dana: whether Dana qualifies depends on adjusted gross income against that year's thresholds. It costs nothing to check, and for a tech earning near the bottom of the range it is a meaningful return on a contribution already being made.

Step 7: Re-check once a year, and whenever a job changes

Limits are indexed every year. A new job with a plan changes your IRA deduction and shares your deferral limit. A jump in income can move you out of Roth eligibility. What breaks if you skip it: an excess contribution that sits unnoticed and draws its 6 percent excise tax every year until it is removed. If Dana's shop adds a 401(k) next year and Dana joins it, Dana's employee deferrals there and in the solo plan together must stay under one annual limit.

References

• IRS Publication 590-A (contributions to IRAs) and Publication 560 (retirement plans for small business, including SEP and one-participant 401(k) worksheets)
• IRS, "Retirement Plans for Self-Employed People" and "Retirement Savings Contributions Credit (Saver's Credit)" pages
• Internal Revenue Code 25B (saver's credit) and 4973 (excess contributions)
• See related: The Retirement Match and Why to Take It, Going 1099: The Tax Math a Tech Misses, Filing Quarterly Estimated Taxes on Side Income, Building an Emergency Fund on Seasonal Income