New on FinoLib · Volume V: Personal Finance
I have added a new article to FinoLib, my finance education website: Self-Employed Retirement Contributions: What the Tax Data Show, part of Volume V: Personal Finance. It is part 2 of a 2-part guide. This page gives you the core of the topic in expert but plain language; the full article goes much deeper.
A closer look
Part 6 covered the containers — 401(k)s, IRAs, HSAs. This Part covers what actually goes inside them, and inside an ordinary taxable brokerage account too. Vol. II’s Part 5 built portfolio theory from the institutional side — diversification, the efficient frontier, the Sharpe ratio. This Part is the same discipline, radically simplified to what one person actually needs to do.
Decision rule
Rule: If your business has no employees other than a spouse and you can save more than 20% of net earnings after half of self-employment tax, open a Solo 401(k) before December 31 (or, for a first plan as a sole proprietor, by April 15). If you will save 20% or less, want the least paperwork, or are deciding after the deadline has passed, use a SEP-IRA.
The costliest mistake
Choosing the SEP-IRA by habit when a Solo 401(k) fits. At $90,000 of profit, the SEP stops at $16,728.34; the Solo 401(k) allows $24,500 more every year. A freelancer who could save that $24,500 but puts it in a taxable account instead gives up 20 years of tax-sheltered growth: at 7%, $24,500 a year for 20 years grows to $24,500 × [(1.07^20 − 1) ÷ 0.07] = $24,500 × 40.995 = $1,004,390, untaxed if the deferrals went in as Roth; $514,390 of it ($1,004,390 − $490,000) is growth. The taxable account taxes that growth along the way.
Why It Matters: What the Tax Data Show
Few self-employed people use these accounts. The IRS’s Statistics of Income line-item estimates for tax year 2023 (Publication 4801, published June 2026) count 946,019 returns claiming the deduction for self-employed SEP, SIMPLE and qualified plans, for a total of about $30.1 billion, an average of roughly $31,850 per return ($30,130,848,000 ÷ 946,019).
When This Breaks
A Solo 401(k) is only “solo” while the business has no employees beyond the owner and a spouse. Hire someone who meets the plan’s eligibility terms — commonly age 21 and a year of service, and under SECURE 2.0 long-term part-time workers can qualify too — and the plan must cover them and pass the same nondiscrimination tests as any employer 401(k), or be replaced.
Recap
Self-employed people contribute as both employee and employer: a Solo 401(k) allows a $24,500 deferral in 2026 plus an employer contribution of 20% of net profit after half of self-employment tax, while a SEP-IRA has only the employer half and no catch-ups. At $90,000 of profit that is $41,228.34 against $16,728.34.
More from the article
■EPF + VPF — 401(k) with match (6.2, 6.5) — Mandatory for covered staff; fixed declared rate; part of the employer share funds EPS
■PPF — No exact match — ₹1.5 lakh a year cap; 15-year term; 7.1% for Oct–Dec 2026, reset quarterly; interest tax-free
■NPS Tier I — Traditional 401(k)/IRA — Market-linked; employer contribution up to 14% of salary deductible in the new regime; extra ₹50,000 own-contribution deduction in the old regime only; at least 20% buys an annuity at exit
■NPS Tier II — Taxable brokerage — Withdraw any time; no tax break for most subscribers
■ELSS fund — None — Equity mutual fund with a 3-year lock-in, inside the ₹1.5 lakh 80C cap (old regime)
About FinoLib: it is my free finance education library. It runs to five volumes, from the whole-economy view in Volume I to household-level detail in Volume V, and every article is written to be read on its own, with worked numbers and primary sources behind the facts.
How the articles are built: each one opens with a plain-words explanation and a short summary, develops the idea with a worked example, and closes with a decision rule, the costliest mistake, a recap and a self-check quiz. The aim is that you can read any single article without having read the others.
What the full article covers
The full article includes a clear decision rule, the one mistake that costs people the most, a recap, a reveal-on-click quiz and the official sources behind every figure.
Volume V: Personal Finance
Read the full article on FinoLib
The complete article, Self-Employed Retirement Contributions: What the Tax Data Show, with every worked example, diagram, quiz and source, is free to read in Volume V, Personal Finance on finolib.com.
Explore the Finance Education Series: Vol. II — Capital Markets · Vol. I — Global Economy · Vol. III — Finance Encyclopedia · Vol. IV — Finance Careers · Vol. V — Personal Finance