Two Powerful Accounts That Most Self-Employed Professionals Underutilize
The retirement savings options available to self-employed cleaning professionals are significantly more powerful than most people realize — both in how much you can contribute and in the immediate tax reduction those contributions provide.
Most cleaning professionals who are aware that retirement accounts exist believe they are too complicated to open, too restrictive to be useful, or only worth using once their income reaches some threshold they have not yet hit. All of these beliefs are incorrect.
The reality: you can open a SEP-IRA at Fidelity in approximately 20 minutes with no fees. You can make contributions that directly reduce your current-year tax bill. And the benefit of starting earlier rather than later compounds over decades in ways that make every year of delay costly.
This guide explains both accounts clearly, with the specific numbers that show why they matter.
Why Retirement Contributions Reduce Your Taxes Now
When you contribute to a SEP-IRA or Solo 401(k) as a self-employed professional, the contribution reduces your adjusted gross income in the year you make it. This is not a future tax benefit — it is an immediate reduction in what you owe this year.
A cleaning professional with $70,000 in net self-employment income who contributes $14,000 to a SEP-IRA pays income tax and self-employment tax on $56,000, not $70,000.
At a 22 percent federal income tax bracket: that is $3,080 less in federal income tax.
The self-employment tax impact is more complex. SEP-IRA contributions reduce income tax but not self-employment tax directly. However, the reduction in taxable income from retirement contributions still produces meaningful, real savings in the year of contribution.
The money is not lost — it is invested in your retirement account, growing tax-deferred. You are building wealth while simultaneously paying less tax. These goals are aligned in the retirement account structure.
SEP-IRA: Maximum Simplicity, High Limits
A Simplified Employee Pension IRA is the standard starting point for most self-employed cleaning professionals because of its combination of high contribution limits, complete simplicity, and generous deadline flexibility.
Contribution Limits
You can contribute up to 25 percent of your net self-employment income (after deducting half of your SE tax from gross income), with a maximum of $69,000 for the 2024 tax year.
- •$50,000 net income: maximum SEP-IRA contribution approximately $9,280
- •$70,000 net income: approximately $13,064
- •$100,000 net income: approximately $18,587
- •$150,000 net income: approximately $27,881
The Deadline Flexibility That Makes SEP-IRA Unique
You can make your SEP-IRA contribution for a given tax year as late as the filing deadline of your return, including extensions. For most self-employed professionals who file extensions, this means October 15 of the following year.
This means you can wait until your accountant has completed your return and you know your exact taxable income before deciding how much to contribute. There is no December 31 funding deadline — unlike employer 401(k) plans where contributions must be made during the plan year.
Setup and Costs
Open a SEP-IRA at any major brokerage — Fidelity, Vanguard, Schwab, or similar. All major brokerages offer SEP-IRAs with no account opening fees, no annual maintenance fees, and access to a wide range of low-cost index funds and other investment options.
The process takes approximately 20 minutes online. You will provide your Social Security number or EIN, your business name and structure, and initial funding if you are ready to contribute.
Employee Implications
If you hire employees in the future, a SEP-IRA requires that you contribute to their SEP accounts at the same percentage rate you contribute to your own. For a business with multiple employees, this can make the SEP-IRA expensive — and a different plan structure, like a SIMPLE IRA or 401(k), may be more appropriate.
For solo operators and those with no plans to hire, this consideration does not apply.
Solo 401(k): Higher Contributions at Moderate Income Levels
A Solo 401(k) — also called an Individual 401(k) or Self-Employed 401(k) — is available to self-employed individuals with no employees other than a spouse. Its primary advantage is a higher effective contribution ceiling at moderate income levels.
How the Two-Component Structure Works
The Solo 401(k) allows contributions from two sides simultaneously:
Employee contribution: As the employee of your own business, you can contribute up to $23,000 in 2024. If you are 50 or older, the catch-up contribution limit increases this to $30,500.
Employer contribution: The business can additionally contribute up to 25 percent of net self-employment income.
Total maximum: $69,000 in 2024 ($76,500 for those 50 or older).
Why This Enables Higher Contributions at $40,000 to $100,000 Income
At $50,000 net income, a SEP-IRA allows approximately $9,280. A Solo 401(k) allows $23,000 in employee contributions alone, plus the 25 percent employer component — for a total of approximately $32,280.
This is a meaningful difference in both retirement savings and current-year tax reduction.
The December 31 Account Opening Requirement
Unlike the SEP-IRA, a Solo 401(k) must be established (opened) by December 31 of the tax year for which you want to make contributions. You cannot open a Solo 401(k) in April and retroactively fund it for the prior year.
The actual contributions can still be made by the filing deadline — but the account must exist by year-end.
This means if you are reading this in November or December and you have not yet opened a Solo 401(k), the December 31 deadline requires prompt action.
Administrative Requirements
Solo 401(k) plans require a plan document, which brokerages provide automatically when you open the account. Once your plan assets exceed $250,000, an annual Form 5500-EZ is required — a simple form that takes approximately one hour to complete.
The complexity is genuinely modest. The contribution flexibility is genuinely substantial.
Which Account to Choose
Choose a SEP-IRA if you want the simplest possible option, if your net income is below $60,000, if you might hire non-spouse employees in the future, or if you want to make the contribution decision after the year ends.
Choose a Solo 401(k) if your net income is above $60,000 to $80,000 and you want to maximize contributions, if you are confident you will not hire non-spouse employees, or if you want the option to borrow from the account (Solo 401(k)s permit loans under certain conditions; SEP-IRAs do not).
Both options are substantially better than having no retirement account. The most important decision is to open one and start contributing.
The Contribution Limit and Annual Decision
Each year, set a contribution target before December 31 — not after filing season. The SEP-IRA allows contributions up to April 15 of the following year (or October 15 with extension), giving you time to calculate the optimal contribution after seeing your final net income. The Solo 401(k) must be established by December 31 of the contribution year, even if the actual contribution happens later.
The practical approach: in December, estimate your net income. Calculate 20 percent. If cash flow allows, maximize the SEP-IRA contribution before filing. The tax savings — at a 22 percent federal bracket plus 15.3 percent SE tax reduced by the contribution deduction — compound significantly in favor of consistent annual maximum contributions.