Solo 401(k), SEP-IRA & Healthcare: Benefits for Fractional Executives
When you leave a salaried role for fractional, advisory, or interim work, you stop getting two things almost nobody warns you about: a company match on your retirement account and a subsidized health plan. The good news is you can rebuild both on your own, often with more control and a higher contribution ceiling than you had as an employee.
What you actually lose when the W-2 ends
As an employee, your benefits were quiet. Money moved into a 401(k) before you saw it, the employer added a match, and your health premium came out pre-tax while the company covered most of the bill. None of that happens automatically when you are self-employed.
The flip side is that you are now both the employee and the employer. That means you can contribute to a retirement plan in both roles, which is why a solo practitioner can often shelter far more income than a salaried worker. You also deduct your own health premiums. The system rewards you for setting this up; it just will not do it for you.
The retirement plan for a self-employed consultant: Solo 401(k) vs SEP-IRA
If you run a one-person business with no employees, two plans dominate the conversation: the Solo 401(k) and the SEP-IRA. Both let you contribute pre-tax dollars and grow them tax-deferred. The difference is in how much you can put in, how flexible they are, and how much paperwork they create.
A Solo 401(k) lets you contribute as the employee and again as the employer, so you reach a high total on a smaller income. Many providers also offer a Roth side, and some allow loans. The tradeoff is slightly more setup and, once the balance grows past a threshold, an annual information return.
A SEP-IRA is the simpler option. There is almost no ongoing admin, and you can open and fund one quickly, even close to your tax deadline. The catch is that contributions come only from the employer side, so at lower income levels you can shelter less than a Solo 401(k) allows, and there is no built-in Roth or loan feature.
| Feature | Solo 401(k) | SEP-IRA |
|---|---|---|
| Who it fits | One-person business, no employees | One-person business, simplicity-first |
| Contribution sources | Employee and employer | Employer only |
| Roth option | Often available | Generally no |
| Loans allowed | Sometimes | No |
| Setup and admin | Moderate; filing once balance is large | Very low |
| Best when | You want to maximize at moderate income | You want to open and fund it fast |
A rough rule of thumb: if your net self-employment income is moderate and you want to shelter as much as possible, the Solo 401(k) usually wins because of the dual contribution. If you value simplicity and might fund it at the last minute, the SEP-IRA is hard to beat. If you ever hire a W-2 employee, both plans change in how they treat that person, so revisit the choice with a tax professional before you add staff. Contribution limits change yearly, so confirm the current numbers rather than relying on a figure you remember.
Healthcare when no one is covering your premium
Health coverage is usually the bigger emotional hurdle than retirement, because the bill is large and arrives every month. You have more paths than people assume:
- ACA marketplace plan. The individual exchange is the default for most solo operators. Plans are guaranteed-issue regardless of health history, and depending on your income you may qualify for a premium tax credit that lowers the monthly cost.
- A spouse or partner's employer plan. If your household has access to a group plan, getting added to it is often the cheapest and simplest route. Leaving a job can count as a qualifying event that opens enrollment outside the normal window.
- COBRA continuation. You can usually keep your old employer's plan for a limited stretch, but you pay the full premium with no employer subsidy, so it is often expensive. It is most useful as a short bridge while you compare other options.
- Professional or trade associations. Some membership groups offer access to group coverage. Read the fine print, because quality and protections vary widely.
Two things make this cheaper than it looks. First, self-employed people can generally deduct their health insurance premiums, which softens the real cost at tax time. Second, an HSA paired with a high-deductible plan gives you a triple tax advantage: the money goes in pre-tax, grows untouched, and comes out tax-free for medical costs. Many fractional operators treat an HSA as a second retirement account they rarely spend from.
How to set this up without overthinking it
You do not need to solve everything in week one. A workable order of operations keeps you covered while you build:
- Lock in health coverage first, using a qualifying-event window if you just left a job, so you are never uninsured.
- Open a retirement account at a major brokerage. Choose the SEP-IRA if you want it done today, or the Solo 401(k) if you want the higher ceiling and Roth flexibility.
- Set aside money for taxes from every payment, since no one is withholding for you. A separate account for taxes and one for retirement keeps the math honest.
- Once your income is steady, ask a tax professional to confirm your plan choice and contribution amount. The fee is small against what these accounts can save you.
The mindset shift is the main thing. As an employee, benefits were a perk handed to you. As a fractional executive, they are a line item you fund from your own rate, which is exactly why your rate has to be high enough to cover them. Price the benefits into what you charge, and the loss of the W-2 stops feeling like a loss.
Build the rate that pays for all of it
Every dollar of retirement contribution and every health premium ultimately comes out of what clients pay you, so the cleaner your path to well-paid work, the easier these decisions get. On ExecRoster you publish a profile, set your own rate and terms, and get found by companies directly, keeping roughly 90 percent of each booking with no recruiter in the middle. When more of your income stays yours, funding your own benefits stops being a worry and starts being a plan.