Roth IRA Contributions for Self-Employed Individuals

 

As a CPA who works closely with self-employed individuals, I often recommend Roth IRAs as a foundational retirement tool — especially for those who want long-term tax-free income and more control over their savings.

What Is a Roth IRA

A Roth IRA allows you to contribute after-tax dollars now, with the benefit of tax-free growth and withdrawals in retirement. For 2025, the contribution limit is $7,000 (or $8,000 if you’re 50+). While the upfront deduction is sacrificed, the tradeoff is decades of tax-free compounding — and no taxes when you take the money out in retirement.

This flexibility is valuable for self-employed professionals who don’t have employer-sponsored plans and want to diversify their retirement tax exposure.

Roth IRA Benefits

  • Tax-free growth and withdrawals after age 59½
  • No required minimum distributions (RMDs), offering long-term control
  • Contribution amounts (not earnings) can be accessed anytime, penalty-free
  • There are major estate planning benefits for those looking to pass on wealth tax-efficiently

Roth IRA Factors to Consider

That said, Roth IRAs aren’t for everyone. There are income limits (currently $150,000 for single filers and $236,000 for married couples filing jointly), and contributions aren’t deductible. High earners often use a “backdoor Roth” strategy to work around this — by making a non-deductible contribution to a Traditional IRA and then converting that amount to a Roth IRA. This method is commonly used, but it needs to be handled carefully. If you have other pre-tax IRA balances (including SEP or SIMPLE IRAs), the IRS’s pro-rata rule may cause a portion of the conversion to be taxable.

For best results, the strategy works when the Traditional IRA holds only non-deductible contributions and little to no investment gains at the time of conversion. A common misconception I often clear up is that Roth IRAs are only for people expecting to be in a higher tax bracket in retirement. In reality, they can be a valuable part of a broader tax diversification plan, especially for self-employed individuals managing variable income or planning for legacy goals.

Bottom Line

Roth IRAs offer flexibility, tax-free growth, and long-term value — but they require proper planning to use effectively, especially if you’re self-employed and earning above the income limits.

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