How to Lower Your Tax Bill with a Retirement Plan
- Keize Associates CPAs
- Apr 10
- 4 min read
If you're self-employed or run a small business, now’s the time to think beyond this year’s tax return. One of the smartest ways to reduce your 2025 tax liability—and build long-term financial security—is to set up a self-employed retirement plan.
Let’s break down your options in plain terms, so you can make an informed decision that fits your income, goals, and lifestyle..
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Why A Retirement Plan Matters
If you're self-employed, having a retirement plan isn't just about saving for the future—it's a smart tax move. The right plan can lower your taxable income and help you keep more of what you earn.
You don’t need to contribute large amounts to see real benefits. Here’s a breakdown of the most practical retirement plan options for self-employed individuals in 2025.
1. SEP-IRA
A SEP-IRA is ideal if you want a simple way to save with generous contribution limits.
2025 Contribution Limit:
Up to 25% of your net self-employment income, with a maximum contribution of $69,000.
Pros:
High contribution limits
Easy to set up and manage
Contributions are flexible each year
Cons:
No Roth option
No borrowing allowed
Contributions must be made by your tax filing deadline (including extensions)
💡 Best for solo business owners or freelancers with variable income who want flexibility and tax savings.
2. Solo 401(k)
High contribution, high impact. The Solo 401(k) gives you the biggest opportunity to stash away tax-deferred savings, especially if you're over 50.
2025 Contribution Limits:
Employee deferral: Up to $23,000
Catch-up for 50+: Add $7,500 more (total = $30,500)
Employer contribution: Up to 25% of net income, combined total limit of $69,000 (or $76,500 with catch-up)
Pros:
Highest contribution limits available
Can include Roth option and borrowing
Allows both employee + employer contributions
Cons:
More paperwork
Requires setup and maintenance—professional help recommended
💡 Best for self-employed individuals with high income who want to save aggressively and possibly retire early.
3. SIMPLE IRA
As the name says—simple. If your income is more modest or you’re just getting started, a SIMPLE IRA offers a low-barrier entry point.
2025 Contribution Limits:
Up to $16,000
Additional $3,500 catch-up contribution for those 50+ (total = $19,500)
Must be set up by October 1st, 2025 to count for this tax year.
Pros:
Easy to set up and maintain
Minimal administration required
Employer matching options if you have employees
Cons:
Lower contribution limits
No loan or Roth features
Must act early to meet the setup deadline
💡 Best for smaller businesses or side hustlers who want a low-maintenance retirement plan.
4. Keogh Plan
Good if you have employees—and want flexibility. A Keogh Plan offers higher flexibility in contributions and the option to borrow against the plan. But it comes with more paperwork and compliance requirements.
2025 Contribution Limits:
Same as SEP-IRA and Solo 401(k): up to $69,000, depending on income and plan type (defined contribution or defined benefit).
Pros:
Can include loan provisions
Works well for businesses with employees
Cons:
More complex setup and administration
Must provide benefits to eligible employees
💡 Best for established businesses with employees and higher profits.
Which Plan is Right for You?
Goal | Plan |
Maximize retirement savings | Solo 401(k) |
Keep it simple and flexible | SEP-IRA |
Save without complexity | SIMPLE IRA |
Want loan options or have a team | Keogh Plan |
Don’t Miss the Deadline
You can still open and fund a SEP-IRA or Solo 401(k) for the 2025 tax year up to your filing deadline, including extensions. But don’t wait—some plans, like the SIMPLE IRA, have earlier setup cutoffs.
Let’s Make Choosing A Retirement Plan Simple
At Keize CPA, we break down complex financial decisions into clear, actionable steps. Whether you're looking to lower your tax bill, grow your savings, or simply get a better grip on your business finances, we’re here to help.
Ready to talk retirement plans? Book your consultation. We’ll help you pick the right plan and get it set up before it’s too late.
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