Whether you are an entrepreneurial mogul in the making or a just-getting-going gig worker, you have the extra job of having to run your own personal HR department. That means you are in charge of your retirement savings plan.

There are special retirement accounts for the self-employed. What is best is a function of where you are in your career, and your cash flow.

Roth individual retirement account (IRA)

Best for: Entrepreneurs who have yet to hit the mother lode and could use a backup emergency plan.

Maximum 2019 contribution: $6,000 if you are younger than 50; $7,000 if you are at least 50.

A Roth IRA can multi-task. Its central job is as a retirement savings plan, but it can also be a backup emergency savings account.

A Roth IRA is all about delayed gratification. Money that you contribute doesn’t land you any break on this year’s taxable income (a traditional IRA may allow you to claim a deduction). The payoff with a Roth IRA is that, once you hit 59½, you can make withdrawals without paying any tax. By comparison, withdrawals from a traditional IRA will be taxed as ordinary income. If you have yet to hit peak earnings, the lack of an upfront tax break shouldn’t be a priority.

You can contribute the annual maximum to a Roth IRA in 2019 if you are single and have modified adjusted gross income below $122,000, or married filing a joint return with modified adjusted gross income below $193,000.

A Roth IRA can also serve as emergency cash. Tucking three to six months of living costs into a bank or credit union savings account is the smartest way to weather an unexpected income drain. But if you are still working on building up your savings fund, you could tap the money you have contributed to your Roth IRA without owing any tax or early withdrawal penalty. It is only your Roth earnings you don’t want to touch, as they will be hit with an early-withdrawal penalty (if you are younger than 59½) and tax. If you make an early withdrawal from a traditional IRA you will owe a 10% penalty and income tax.

Can’t cough up the $6,000/$7,000 right now? How about $525/$583 monthly contributions? Or $250 a month for now until your business builds.

Every discount brokerage will be set you up with a Roth IRA account and won’t charge you to have automatic deposits sent monthly from your checking account. (Your bank won’t charge you either.)

Simplified employee pension (SEP-IRA)

Best for: When you are ready to save more than the Roth IRA limit.

Maximum 2019 contribution: 20% of your net income up to a limit of $56,000.

Don’t get skittish over the mention of a pension. SEP-IRA accounts are common. The ability to save a lot more than in a Roth IRA makes a SEP-IRA the way to go once you can generate enough cash flow.

A catch: With a SEP-IRA, there is no Roth option. All contributions are made with pretax dollars, but in retirement all withdrawals will be taxed as income. The upside is that as your business grows, claiming your entire contribution as a deduction will reduce your current tax bill.

If you anticipate that you might eventually hire employees, you should sit down with a CPA who has retirement plan chops. With a SEP-IRA, you must offer the same percentage contribution that you take for yourself to every employee.

Individual or solo 401(k)

Best for: If you want to be able to save in a Roth and like the flexibility of loaning yourself money (in an emergency, of course).

Maximum 2019 contribution: $19,000 in salary if you are younger than 50, $25,000 if you are at least 50. Plus profit-sharing that can bring total contributions to a maximum of $56,000/$62,000.

If you don’t have employees (other than your spouse), you can set up your own individual 401(k). If you are at least 50 and in a position to ramp up retirement savings, the $6,000 per-year “catch-up” contribution allowed for individual 401(k)s may enable you to save more than if you used a SEP-IRA, which doesn’t have a “catch-up” option.

The biggest difference compared to a SEP-IRA is that you can have an individual Roth 401(k). In fact, you can choose each year whether to make contributions with pretax income (the traditional model), or with after-tax dollars (the Roth model).

Also, a solo or individual 401(k) is the only retirement plan for the self-employed that allows you to take out a loan. An individual 401(k) requires a bit more paperwork than a SEP-IRA; working with a CPA who has small-business retirement plan experience is smart.


Carla Fried writes for Rate.com.