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Retirement Accounts for Founders

Retirement accounts —
the most powerful tax tool most founders never use.

A SEP-IRA or Solo 401k can legally shelter tens of thousands of dollars from taxes every year. Most founders either don't know they exist or think they're complicated. They're not. Here's everything you need to know.

$69,000Max SEP-IRA contribution 2024
$69,000Max Solo 401k 2024
$6,600+Avg tax savings at $100k profit
15 minTo open at Fidelity or Vanguard
The single most valuable tax move most founders never make: contributing to a retirement account. Every dollar you contribute reduces your taxable income dollar-for-dollar — saving you income tax at both the federal AND state level simultaneously.

Why retirement accounts matter so much for founders

As a W-2 employee, your employer likely offered a 401k and maybe even matched contributions. As a founder, nobody offers you anything — you have to set it up yourself. Most never do. That's a massive missed opportunity.

1
Every dollar contributed reduces your taxable incomeA $20,000 SEP-IRA contribution reduces your AGI by $20,000. At a combined federal + Hawaii rate of 33%, that's $6,600 in immediate tax savings — money that would have gone to the IRS now goes into your retirement account instead.
2
Contributions compound tax-free until retirementInside a traditional retirement account, your investments grow without annual tax on dividends or capital gains. Over 20–30 years, the compound growth on those tax-free returns is enormous compared to a taxable account.
3
The contribution limits are far higher than most people realizeAn employee can contribute $23,000 to a 401k in 2024. A self-employed founder using a Solo 401k can contribute up to $69,000 in 2024 — more than triple. The IRS gives founders dramatically more room to shelter income.
4
You have until tax day to contribute for the prior yearFor a SEP-IRA, you can make contributions for 2024 all the way until April 15, 2025 (or October 15 if you file an extension). This means you can calculate your exact tax savings before deciding how much to contribute.Contribute after you know your profit
SEP-IRA
Simplest option
Open in 15 minutes. Contribute up to 25% of net self-employment income. Perfect for most founders starting out.
Solo 401k
Higher limits
Employee + employer contributions. Better for higher earners who want to maximize contributions. Slightly more paperwork.
SIMPLE IRA
With employees
When you have employees and want to offer retirement benefits. Lower limits but simpler than a full 401k plan.
Roth IRA
After-tax growth
No immediate deduction but tax-free growth AND tax-free withdrawals. Contribute up to $7,000 in 2024. Income limits apply.

SEP-IRA — the simplest retirement account for founders

The Simplified Employee Pension IRA is the easiest retirement account to open and manage. No annual filing requirements, flexible contributions, and generous limits. For most founders starting out, it's the right choice.

25%
Max contribution rate
Up to 25% of net self-employment income (after SE tax deduction). S-Corp owners: 25% of W-2 salary.
$69,000
2024 dollar limit
You cannot contribute more than $69,000 regardless of income. Most founders hit the percentage cap well before the dollar limit.
Apr 15
Contribution deadline
You can contribute for 2024 up until April 15, 2025 (Oct 15 with extension). Set up the account before December 31 to be safe.
No
Annual IRS filing
SEP-IRAs have no annual Form 5500 filing requirement under $250k in assets — a big administrative advantage over Solo 401ks.
How SEP-IRA contributions are calculated
1
For sole props and single-member LLCsNet self-employment income (Schedule C profit) minus the SE tax deduction (half of SE tax) × 20% = your maximum SEP-IRA contribution. The formula works out to about 18.587% of gross self-employment income for most founders.Use IRS Publication 560 worksheet or ask your CPA
2
For S-Corp ownersAs an S-Corp owner-employee, your SEP-IRA contribution is based on your W-2 salary — not total business profit. Maximum: 25% of W-2 salary up to $69,000. A $60,000 salary allows up to $15,000 in SEP-IRA contributions.S-Corp owners have a simpler calculation
!
If you have employees — be carefulA SEP-IRA requires you to contribute the same percentage for ALL eligible employees as you contribute for yourself. If you contribute 15% of your compensation, you must contribute 15% of each eligible employee's compensation too. This makes SEP-IRAs expensive once you have employees.Switch to Solo 401k or SIMPLE IRA before hiring
The best SEP-IRA strategy for Hawaii founders: Maximize your contribution every year before tax day. At Hawaii's 11% state income tax rate, a $20,000 SEP-IRA contribution saves $2,200 in Hawaii state tax alone — on top of $4,400 in federal savings at the 22% bracket. Total savings: $6,600 from a single contribution.

Solo 401k — higher limits for higher earners

The Solo 401k (also called Individual 401k or Self-Employed 401k) allows higher contributions than a SEP-IRA at the same income level because you contribute as both employee AND employer. It's the better choice for founders who want to maximize retirement savings.

$23,000
Employee contribution 2024
You contribute as the "employee" — this is the same limit as a regular 401k. Plus catch-up of $7,500 if you're 50+.
25%
Employer contribution
You also contribute as the "employer" — up to 25% of net self-employment income. The two contributions combine up to $69,000 total.
$69,000
Total limit 2024
Combined employee + employer contributions cannot exceed $69,000 (or $76,500 with catch-up if 50+).
Dec 31
Account setup deadline
The Solo 401k must be established by December 31 of the tax year. Employee contributions can continue until April 15.
Solo 401k requires annual Form 5500 filing once assets exceed $250,000. Below that threshold — no annual filing required. Above $250,000, you must file Form 5500-EZ annually. Factor this compliance requirement into your decision if you're a high earner building up assets quickly.
Solo 401k advantage over SEP-IRA at lower income levels: At $50,000 in net self-employment income, a SEP-IRA allows about $9,293 in contributions. A Solo 401k allows $23,000 (the full employee contribution) plus the employer portion — dramatically more. At lower income levels, the Solo 401k wins clearly.
Roth option available in Solo 401k: Many Solo 401k providers allow Roth contributions — you pay tax now but withdrawals in retirement are completely tax-free. A powerful option for younger founders who expect to be in higher tax brackets in retirement. Unlike a Roth IRA, there are no income limits on Roth Solo 401k contributions.

SEP-IRA

Simple · flexible · no filing
2024 max contribution$69,000
Min income for max contribution~$305,000
Contribution at $50k income~$9,300
Contribution at $100k income~$18,600
Annual IRS filingNone under $250k
Setup deadlineTax day (Apr 15)
Roth optionNo
Loan optionNo
Employee impactMust match % for all
ComplexityVery low
Best forHigher earners, simplicity

Solo 401k

Higher limits at lower income
2024 max contribution$69,000
Min income for max contribution~$184,000
Contribution at $50k income~$32,300
Contribution at $100k income~$41,600
Annual IRS filingForm 5500 over $250k
Setup deadlineDec 31 of tax year
Roth optionYes
Loan optionYes (up to $50k)
Employee impactNo employees allowed
ComplexityModerate
Best forLower/mid earners, Roth
The simple decision rule: If your net self-employment income is under $150,000 — Solo 401k almost always allows higher contributions. Over $150,000 — they're roughly equal. If you have employees — SEP-IRA or SIMPLE IRA (Solo 401k requires no employees). If you want a Roth option — Solo 401k.
Contribution comparison at every income level
Net profitSEP-IRA maxSolo 401k maxSolo 401k advantage
$30,000$4,093$23,000+$18,907
$50,000$9,294$32,294+$23,000
$75,000$13,941$36,941+$23,000
$100,000$18,587$41,587+$23,000
$150,000$27,881$50,881+$23,000
$200,000$37,174$60,174+$23,000
$280,000+$69,000$69,000Equal

Retirement contribution tax savings calculator

See exactly how much you'd save in taxes by contributing to a retirement account — federal and Hawaii state combined.

$100,000
$20,000
—
$4,400
federal tax savings
$2,200
state tax savings
$6,600
total tax savings
$13,400
net cost after tax savings
$18,587
SEP-IRA max contribution
$41,587
Solo 401k max contribution
At $100k profit with a $20,000 contribution in Hawaii — you save $6,600 in taxes. The $20,000 contribution effectively only costs you $13,400 out of pocket after the tax savings.

Why retirement accounts are especially powerful in Hawaii

Hawaii's 11% top income tax rate — the highest in the US — makes every retirement contribution worth more here than almost anywhere else in the country.

The Hawaii math: A $20,000 SEP-IRA contribution in Hawaii saves $2,200 in Hawaii state tax alone. Add $4,400 in federal savings at the 22% bracket. Total immediate tax savings: $6,600 — on a $20,000 contribution. The government is effectively funding 33% of your retirement for you.
Without retirement account
Net profit: $100,000
SE tax: $14,130
Federal income tax: ~$11,200
Hawaii income tax: ~$6,800
Total taxes: ~$32,130
With $20k SEP-IRA
Net profit: $100,000
SE tax: $14,130
Federal income tax: ~$7,000
Hawaii income tax: ~$4,600
Total taxes: ~$25,730
Tax savings: $6,400
The $20k contribution
effectively costs $13,600
after the tax savings.
And it grows tax-free.
The S-Corp + SEP-IRA combination is Hawaii's most powerful tax strategy. An S-Corp election reduces SE tax. A SEP-IRA contribution (based on your W-2 salary) reduces both federal and Hawaii income tax. Together at $100k profit they can save $8,000–$12,000/yr in combined taxes — compounding every year you implement it.
Most Hawaii founders delay opening a retirement account for years. The most common reason: "I'll do it when I'm making more money." This thinking costs you enormously — not just in missed tax savings, but in decades of compound growth. The best time to open a SEP-IRA was when you started your business. The second best time is today.

How to open a SEP-IRA or Solo 401k — step by step

Opening a retirement account is genuinely simple. Here's the exact process for the two most common options.

Opening a SEP-IRA
1
Choose a providerFidelity, Vanguard, or Schwab are the best options — no account fees, excellent investment options, and easy online setup. Fidelity tends to have the most user-friendly online experience for new accounts.Fidelity is our top recommendation
2
Go to the provider's website and open a SEP-IRASearch "open SEP-IRA" at fidelity.com. You'll need your EIN (or Social Security number if sole prop), business name, and address. The online application takes 10–15 minutes. The account is typically ready within 1–2 business days.
3
Calculate your maximum contributionFor sole props and LLCs: net Schedule C profit minus SE tax deduction × 20%. For S-Corps: 25% of your W-2 salary. Use IRS Publication 560 Table and Worksheets or ask your CPA to calculate the exact amount.
4
Make your contributionTransfer money from your business bank account into the SEP-IRA. You can make one lump sum contribution or multiple contributions throughout the year — as long as total doesn't exceed the limit. Contributions can be made up until tax day (April 15 or October 15 with extension).
5
Invest the moneyMoney sitting in the account as cash earns almost nothing. Invest it — broad index funds like a total market fund (FSKAX at Fidelity, VTSAX at Vanguard) or a target date fund are excellent simple choices for most founders. Set it and don't touch it.Contribute first — invest second. Don't leave it as cash.
6
Deduct it on your tax returnSEP-IRA contributions are reported on Form 1040 Schedule 1, Line 16 (Self-employed SEP, SIMPLE, and qualified plans). Your CPA will handle this — just make sure you tell them the total amount contributed and the date of each contribution.
Opening a Solo 401k — key differences
!
Must be opened by December 31Unlike a SEP-IRA (which can be opened up to tax day), a Solo 401k must be established by December 31 of the tax year you want to contribute for. Don't wait until spring — open it in November or December if you're planning to use it.December 31 deadline — no exceptions
1
Choose a provider that offers Solo 401kFidelity, Vanguard, Schwab, and E*TRADE all offer Solo 401k accounts. Fidelity's is free with no fees. Some providers (like Vanguard) require a minimum balance. Check current terms before opening.
2
You need an EIN — not a Social Security numberA Solo 401k requires an EIN (even for sole props). If you don't have one, apply free at irs.gov/ein — takes 15 minutes. You cannot open a Solo 401k with just your SSN.
3
Make both employee and employer contributionsEmployee elective deferral: up to $23,000 (make by Dec 31 for S-Corp W-2 earners, or by tax day for self-employed). Employer profit sharing contribution: up to 25% of net self-employment income (make by tax day).
Once your Solo 401k assets exceed $250,000, you must file Form 5500-EZ annually with the IRS. It's straightforward but adds a compliance step. Most founders reach this milestone after several years of consistent contributions — by then the tax savings have far outweighed the paperwork.

Ready to run the numbers for your situation?

Use the quarterly calculator in your dashboard to see how a retirement contribution affects your overall tax picture.

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