Coast FIRE When You're Self-Employed

Coast FIRE works the same way when you work for yourself: once your investments can grow to what you need by retirement without more contributions, you can stop saving. Two things change. A solo 401(k) lets you save a much bigger share of a modest income than an employer plan would, and because your income swings, the contribution you plug into a calculator should be one you can make in a bad year, not an average one.

How much can you put in a solo 401(k)?

A solo 401(k), which the IRS calls a one-participant 401(k), is for a business owner with no employees other than a spouse. You contribute to it twice, once as the employee and once as the employer.

As the employee, you can defer up to $24,500 in 2026, plus $8,000 more at 50 and older, or $11,250 more at ages 60 to 63, according to the IRS. As the employer, you can add up to 25% of compensation. For a sole proprietor or single-member LLC, compensation means net earnings from self-employment after subtracting half of your self-employment tax and the contribution itself. That circular definition works out to 20% of your net profit after the half-SE-tax deduction, which is the rate Publication 560 gives for a 25% plan.

Both parts together can’t exceed $72,000 in 2026, not counting catch-ups, and no more than $360,000 of compensation can be used in the calculation. Once the plan holds $250,000 or more at year end, you’ll generally need to file Form 5500-EZ.

The deferral limit is per person. If you also have a 401(k) at a day job, the IRS adds up your deferrals across all plans, so what you put in at work comes out of the $24,500. The employer contribution from your own business isn’t affected.

Solo 401(k), SEP IRA or SIMPLE IRA?

A SEP IRA only has the employer half. You can contribute up to 25% of compensation, capped at $72,000 in 2026, which for a sole proprietor is the same 20% of net profit after half of SE tax. Here’s how the two compare at a few levels of net profit:

At any profit a one-person business is likely to see, the solo 401(k) allows more, because the employee deferral doesn’t shrink with a smaller profit the way the 20% does. At $58,000 of profit, a SEP caps you at $10,780, while a solo 401(k) would let you put away more than half your profit if you could afford it.

The SEP still has a place. It’s simpler to open, there’s no Form 5500-EZ to track, and you can fund it up to your tax filing deadline, including extensions, after you know how the year went. If your income is modest and you’d never save more than 20% of profit anyway, a SEP does the job. If you want to save aggressively, which is how people reach Coast FIRE in their 30s, I’d open a solo 401(k), and I’d pick a provider that offers a Roth deferral option.

A SIMPLE IRA caps your own deferrals at $17,000 in 2026, plus a 3% match or a 2% nonelective contribution. It’s built for small businesses with employees. For a one-person business I can’t think of a reason to choose it over a solo 401(k).

Set your Coast FIRE date with a bad year in mind

Take Owen, a 38-year-old freelance video editor. His net profit over the last three years was $58,000, $131,000 and $86,000. He has $240,000 invested, spends $55,000 a year and wants to be able to retire at 65. In his good years he saves around $2,500 a month. In the $58,000 year he managed $1,000.

The calculator wants one monthly number, and the one he picks moves his Coast FIRE date by a decade:

His Coast FIRE number is $491,525 today, and it rises every year until he reaches it. I’d plan around the $1,500. That gives him a date he can count on, 58, and every good year pulls it closer. The $2,500 figure gives a nicer answer, but it assumes nothing goes wrong for ten years, which isn’t how freelance income works.

In practice, rerun the numbers once a year after you file taxes, using your actual balance. A $131,000 year that lets you put $45,000 into the solo 401(k) shows up as a much larger starting balance, and the date moves on its own. The Coast FIRE 401(k) calculator explains how to allow for the tax you’ll owe on pre-tax money.

One more thing that works in the self-employed person’s favor: coasting doesn’t require quitting. Once Owen crosses his number, he can take fewer clients, raise his rates and drop the ones he doesn’t like, and only has to earn his spending plus taxes.

The taxes nobody withholds for you

Self-employment tax is the Social Security and Medicare an employer would otherwise split with you. It’s 15.3% on 92.35% of your net earnings: 12.4% for Social Security, up to a 2026 wage base of $184,500, and 2.9% for Medicare, with an extra 0.9% once self-employment income passes $200,000 for single filers. You deduct half of it when figuring your income tax.

Retirement contributions don’t reduce it. Self-employment tax is figured on your net profit before the solo 401(k) or SEP deduction, so the contributions cut your income tax but not the 15.3%. Account for that when you set your savings rate.

Nobody withholds either tax, so you pay during the year. If you expect to owe $1,000 or more, the IRS expects quarterly estimated payments, due April 15, June 15, September 15 and January 15. With uneven income, the safe harbor is the easiest way to avoid penalties: pay 100% of last year’s total tax in four equal installments, or 110% if last year’s adjusted gross income was over $150,000, as Publication 505 explains. After a big year, I’d move some of the surplus into a separate savings account right away, because April will want it.

Health insurance when you’re the employer

With no employees, you’ll usually buy coverage on the ACA Marketplace, where subsidies depend on the net self-employment income you estimate on your application. For 2026 coverage, the premium tax credit stops at 400% of the poverty line, which is $62,600 for a single person. Earn a dollar more and it’s gone.

Irregular income makes this harder than it is for anyone else. The subsidy is settled on your tax return against what you actually earned, and starting with 2026 there’s no cap on paying back an excess credit. A lean-year estimate followed by a $131,000 year could mean a large bill at tax time. Update your Marketplace application when a good year starts to look like one.

Pre-tax solo 401(k) contributions help here. They lower the income the subsidy is based on, so in a middling year, deferring an extra $10,000 can keep you under the cutoff. You can also usually deduct your premiums as self-employed health insurance, but not for any month you were eligible for a subsidized plan through your own or your spouse’s employer.

Our post on health insurance before 65 goes through subsidies in more detail, including what changes for 2027 and how to add the cost to your Coast FIRE number.