Lesson P201.3 · Personal Finance 201: Build Wealth
Retirement on your own: IRAs, Roth and self-employed accounts
5-minute read · Figures for tax year 2026
Photo: Lukas Blazek / Pexels, Pexels License
The short answer
If you're paid on a 1099 or in cash, or your job has no plan, open your own retirement account once your consumer debt is gone and your emergency fund is full. For 2026 you can put up to $7,500 into IRAs ($8,600 at 50 or older), as long as you have that much taxable pay. If you're self-employed, a SEP IRA or Solo 401(k) can take more. Automate it, and check whether you can get the Saver's Credit.
IRA or Roth IRA
You open these yourself at a bank, credit union or investment company. The $7,500 limit is one total across both kinds, and a spouse with no pay can have one too when you file jointly.
| Traditional IRA | Roth IRA | |
|---|---|---|
| Going in | May lower your taxes now | After tax, no deduction |
| Coming out in retirement | Taxed as income | Tax-free if you meet the rules |
| Income limits | The deduction can shrink if you or your spouse has a plan at work | For 2026, direct contributions phase out starting at $153,000 single or $242,000 joint |
Dave Ramsey's order is "match beats Roth beats traditional": get any employer match first, then use Roth options, then go back to the workplace plan until you reach 15% of household income. With no plan at work there's no match to get, so in that order the Roth comes first.
If you work for yourself
Side jobs and your own business are self-employment income, and they come with their own retirement accounts. A CPA or enrolled agent can help you pick one and set it up.
| Account | Who it fits | 2026 limit |
|---|---|---|
| SEP IRA | Business owners, including one-person shops | The business puts in up to 25% of pay, capped at $72,000 |
| Solo 401(k) | An owner with no employees other than a spouse | Up to $24,500 as the "employee," plus a business contribution based on earnings |
| SIMPLE IRA | Businesses with 100 or fewer employees | Workers put in up to $17,000 ($18,100 at businesses with 25 or fewer employees); the business must match up to 3% of pay or put in 2% for everyone |
For self-employed people, the business share is figured from net earnings with a special worksheet in IRS Publication 560. If you also have a 401(k) at a job, the $24,500 is one total across all your plans.
Credits and state programs
Saver's Credit (2026). You may get a credit of 50%, 20% or 10% of up to $2,000 you put into retirement accounts ($4,000 joint) if your adjusted gross income is no more than $40,250 single, $60,375 head of household or $80,500 joint. You must be 18 or older, not a full-time student and not claimed as someone's dependent. The credit can't be more than your federal income tax.
Example (made-up numbers): Marcus is single with an adjusted gross income of $26,000. He puts $2,000 into a Roth IRA. His 2026 rate is 20%, so his credit is $400.
Saver's Match (from 2027). Starting with 2027 contributions, the Saver's Match replaces the Saver's Credit. It adds up to 50% of the first $2,000 you put in, at most $1,000, and the money goes into a workplace plan or a traditional (non-Roth) IRA instead of to you. It phases out between $20,500 and $35,500 single, $30,750 and $53,250 head of household, and $41,000 and $71,000 joint. The IRS is still writing the final rules.
State programs. If you work for a small business with no plan, your state may run an automatic IRA. Seventeen states have created one and 15 have launched: California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Minnesota, Nevada, New Jersey, New York, Oregon, Rhode Island, Vermont and Virginia. Kansas has none, and Missouri's voluntary plan hasn't launched.
Your Move
Do this week
- Pick your account: a Roth or traditional IRA, or, if you're self-employed, ask a CPA or enrolled agent about a SEP IRA or Solo 401(k).
- Open it at a bank, credit union or investment company.
- Set an automatic monthly transfer for the day after payday. On seasonal pay, set a bigger amount for busy months and keep a smaller one going in winter.
- Check last year's adjusted gross income against the Saver's Credit limits.
Log it: Retirement account opened and automated.
Common questions
Can I have an IRA if I have a 401(k) at work?
Yes. If you or your spouse has a plan at work, the tax deduction for a traditional IRA can shrink at higher incomes, but you can still contribute.
I'm paid in cash. Can I still put money in an IRA?
Yes. Cash pay is taxable pay, so report it on your tax return. IRA contributions can't be more than your taxable pay for the year.
What happens if I put in too much?
The IRS charges a 6% tax each year on the extra until it's fixed. Take out the extra, plus anything it earned, by your tax return's due date, including extensions, to avoid it.
Watch out for
- Contributing more than the limit, or more than your reported pay. The 6% tax repeats every year until it's fixed.
- A retirement account pitched with a guaranteed high return. Lesson P201.5 covers that red flag.
- Counting a retirement contribution as your tax set-aside. Side income still needs its own tax money set aside the day it comes in.
Free help
- IRS: IRA contribution limits
- IRS: Saver's Credit
- Georgetown University Center for Retirement Initiatives: State automatic IRA programs
Free practice
Lesson check
5 questions on this lesson, one at a time, with the answer and the reason after each. Pass with 4 right, including every must-know question.
This is general education, not tax, legal, investment or insurance advice. Rules change and every situation is different. Check the sources below, and talk to a qualified professional before you act on it.
Sources
- IRS: 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500
- IRS: Retirement topics: IRA contribution limits
- IRS: Roth comparison chart
- Ramsey Solutions: Dave's investing philosophy
- IRS: SEP contribution limits
- IRS: One-participant 401(k) plans
- IRS: SIMPLE IRA plan
- IRS: Publication 560, retirement plans for small business
- IRS: How much salary can you defer if you're eligible for more than one retirement plan?
- IRS: Retirement savings contributions credit (Saver's Credit)
- IRS: Notice 2025-67, 2026 limits and Saver's Credit income tiers
- IRS: Form 8880, credit limited to tax liability
- IRS: Notice 2026-48, Saver's Match
- Georgetown University Center for Retirement Initiatives: State auto-IRA programs