Table 1: Contribution Limits for Employed vs. Self-Employed (2024)
| Plan Type | Employed (W-2) Individual Contribution | Self-Employed Individual Contribution | Key Notes |
|---|---|---|---|
| Traditional/Roth IRA | $7,000 ($8,000 if 50+). Limited by MAGI for Roth deductions. | $7,000 ($8,000 if 50+). Limited by Net Earnings from Self-Employment and MAGI for Roth. | The contribution cannot exceed earned income. For self-employed, this is Schedule C/SE income. |
| 401(k) | $23,000 ($30,500 if 50+) as an employee salary deferral. | N/A - A self-employed person cannot be a W-2 employee of their own sole proprietorship. | Self-employed individuals use a Solo 401(k) instead (see below). |
| Solo 401(k) | N/A | 1. As Employee: $23,000 ($30,500 if 50+) 2. As Employer: Up to 25% of Net Self-Employment Earnings Combined Limit: $69,000 ($76,500 if 50+) |
The "employee" portion is a salary deferral. The "employer" portion is profit-sharing. |
| SEP IRA | $0 - Employees cannot contribute to a SEP. | As Employer Only: Up to 25% of Net Self-Employment Earnings. Max: $69,000. | Funded solely by employer contributions. The self-employed person contributes for themselves as the employer. |
| SIMPLE IRA | $16,000 ($19,500 if 50+) as an employee salary deferral. | 1. As Employee: $16,000 ($19,500 if 50+) 2. As Employer: Mandatory match (up to 3%) or non-elective contribution (2%). |
The self-employed person contributes in both roles. Employer contribution is based on self-employment earnings. |
Table 2: Deduction Limits & Tax Treatment (2024)
| Plan Type | Who Deducts It? | How & Where is it Deducted? | Employed (W-2) | Self-Employed (Sched C, Partner) |
|---|---|---|---|---|
| Traditional IRA | Individual | Adjustment to Income on Schedule 1 (Form 1040), not an itemized deduction. | Deductible if under MAGI limits and not covered by an employer plan. | Deductible if under MAGI limits and not covered by another qualified plan. |
| Roth IRA | Individual | Not Deductible. Contributions are made with after-tax dollars. | Not deductible for anyone. | Not deductible for anyone. |
| 401(k) Employee Deferral | Individual | Not reported as taxable income on W-2. Automatically "deducted." | The $23,000 deferral is excluded from Box 1 of the W-2. | N/A |
| Solo 401(k) Employee Deferral | Individual | Deducted on Schedule 1 as a self-employed retirement plan contribution. | N/A | The "employee" portion ($23,000) is deducted here. |
| Solo 401(k) Employer Contribution | Business | Deducted on Schedule C (Line 19) or Form 1065 (K-1). Reduces Net Business Income. | N/A | The "employer" profit-sharing portion (up to 25%) is deducted here. |
| SEP IRA Contribution | Business | Deducted on Schedule C (Line 19) or Form 1065 (K-1). Reduces Net Business Income. | Employer deducts on their business tax return (Form 1120, etc.). | The self-employed person deducts the contribution for themselves on Schedule C. |
| SIMPLE IRA Employee Deferral | Individual | Not reported as taxable income on W-2. Automatically "deducted." | The $16,000 deferral is excluded from Box 1 of the W-2. | The "employee" portion is deducted on Schedule 1. |
| SIMPLE IRA Employer Contribution | Business | Deducted on Schedule C (Line 19) or Form 1065 (K-1). Reduces Net Business Income. | Employer deducts on their business tax return. | The "employer" matching/non-elective portion is deducted on Schedule C. |
Summary: Where to Take the Deductions
For the EMPLOYED (W-2) Individual:
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Your 401(k) or SIMPLE IRA Deferral: You never see this as taxable income. It is automatically excluded from your W-2 (Box 1). No separate deduction needed.
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Your Traditional IRA Contribution: You claim this as an Adjustment to Income on Schedule 1 (Form 1040) if you are eligible.
For the SELF-EMPLOYED (Sole Proprietor) Individual:
This is where it gets split, reflecting their dual role as both employee and employer.
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The "EMPLOYEE" Portion (Salary Deferral):
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This is the money you decide to contribute from your "paycheck" (Solo 401(k)) or your business income (SIMPLE IRA).
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Deduction: Taken on Schedule 1 (Form 1040) as a self-employed retirement plan contribution.
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The "EMPLOYER" Portion (Profit-Sharing/Match):
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This is the money the business contributes on your behalf (SEP, Solo 401(k) employer share, SIMPLE IRA match).
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Deduction: Taken as a business expense on Schedule C (Line 19: Retirement Plans). This directly reduces your Net Business Profit, which lowers your self-employment tax and income tax.
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Why This Matters for Self-Employed:
The "employer" contribution is more powerful from a tax perspective because it reduces both income tax AND self-employment tax (since it lowers Schedule C profit). The "employee" contribution only reduces income tax.