The ‘don’t blame me’ blurb: I am not a financial advisor, portfolio manager, or accountant. This is not tax or investment advice; it’s information to get you going. Please consult your trusty professional and do your due diligence. Carry-on!
More in our series of 'More for us, less for you, IRS!'
TL;DR
Here’s the list of all the tax-saving (known as tax-advantaged) accounts to park your investments.
The accounts are the wrapper, protecting the candy inside from the tax man. (ETFs, stocks, mutual funds, cash)
For most freelancers, the accounts to have are the:
Solo 401(k)
Backdoor Roth IRA
HSA
A Target Date Fund or a Three-Fund Portfolio of ETFs are all you need inside them.
Why do these accounts matter?
Freelancers have access to some fab tax-protected accounts. Some, like the amazing Solo 401(k), are only for single-person businesses (and your spouse).
This list of tax-advantaged accounts can save you hundreds of thousands of dollars in taxes and help grow our investments over time. At first, they can seem a little confusing. Stick with it, get comfortable with the terminology. None of us ever stops learning.
The investments inside these accounts will make us rich slow, growing at 7-8% on average per year. Keep in mind that this is how the wealthy get ahead: they use tax minimization strategies and invest. They also make most of their income from capital (that’s investments), which are taxed at lower rates compared to labor. Yep, the 12-hour days we are all working get taxed at a much higher rate compared to Muffy’s stock portfolio.
We can't change the game; we need to get smart and play it.
Tax-Advantaged Accounts for Freelancers — 2026
Scroll right on mobile · See below the table for definitions of the terms used.
← Scroll to see all columns →
| Account | Contribution | Growth | Withdrawal | 2026 Annual Limit |
|---|---|---|---|---|
| Retirement | ||||
| Traditional Solo 401(k) The must-have for freelancers | Pre-Tax | Tax-Deferred | Taxable Taxed as income after 59½ |
Up to $72,000 (under 50) Up to $80,000 (50–59, 64+) Up to $83,250 (60–63) |
| Roth Solo 401(k) Pay tax now, not later | After-Tax | Tax-Free | Tax-Free After 59½. Contributions always withdrawable. |
Same overall limits as Traditional. Combined employee limit: $24,500 |
|
Mega Backdoor Roth Solo 401(k) Requires a custom plan document |
After-Tax | Tax-Free | Tax-Free After conversion to Roth |
Fills gap to the 415(c) ceiling. Max total: $83,250 (ages 60–63) |
| Backdoor Roth IRA Gets around income limits | After-Tax | Tax-Free | Tax-Free After 59½ and 5-year holding rule |
$7,500 / yr $8,600 if 50+ |
| Health Savings Account (HSA) Triple tax whammy — the underdog account | Pre-Tax | Tax-Free | Tax-Free For qualified medical expenses. After 65: taxed as income for non-medical spending. |
$4,400 individual $8,750 family |
| SEP-IRA Simple to open. Most likely lower contribution limit. | Pre-Tax | Tax-Deferred | Taxable Taxed as income after 59½. Same early withdrawal rules as a Traditional IRA. |
25% of net self-employment income, up to $72,000 No catch-up contributions. No employee deferrals — employer contributions only. |
| Solo 401(k) vs. SEP-IRA: For most freelancers, the Solo 401(k) wins. The SEP-IRA caps you at 25% of net self-employment income — so you need roughly $288,000 in net profit to hit the same $72,000 ceiling. The Solo 401(k) lets you contribute up to $24,500 as an employee regardless of income, then stack employer contributions on top. The one exception: if you have a non-spouse employee, you cannot use a Solo 401(k) — the SEP-IRA becomes your best option because you can contribute the same percentage for yourself and your employee, keeping things simple. A spouse on payroll does not trigger this restriction. | ||||
| Education | ||||
| 529 Plan For the kids. Compounding is your friend. | Pre-Tax Deductibility varies by state. Some states offer partial or full deduction; others offer nothing. | Tax-Free | Tax-Free For qualified education expenses. Up to $35,000 lifetime can roll to a Roth IRA for the beneficiary. | No federal limit. Gift tax rules apply above $19,000/yr. |
| Investing | ||||
| Taxable Brokerage Account Often overlooked. Shouldn't be. | After-Tax | Taxable Capital Gains rate (15% for most) if held >1 yr. Short-term gains taxed as ordinary income. | Taxable Capital Gains rate on sale. Qualified dividends also taxed at CGT rate. | No limit. Invest as much as you want. |
| Saving | ||||
| VBIL — Vanguard 0–3 Month T-Bill ETF A smarter place to park cash | After-Tax | State-Exempt* *100% from U.S. gov't obligations. Federal income tax applies; state & local tax exempt in most states (incl. CA, CT, NY). Check your state. | Federal Taxable Sell anytime. No early withdrawal penalty. Yields float with short-term interest rates. | No limit. Held in a taxable brokerage account. |
| Bank / High-Yield Savings Worst earner. Best for emergencies. | After-Tax | Taxable Interest taxed as ordinary income the year you earn it. Both federal and state. | Taxable Instant access. FDIC insured. Use for emergency fund only. | No limit. FDIC insured up to $250k. |
Definitions
You contribute money before the IRS gets its cut. If you earn $5,000 and put $1,000 into a pre-tax account, you only pay income tax on $4,000 that year. The government is essentially giving you a discount to save for retirement. You will pay tax eventually — just not today.
Your money grows without being taxed each year — but the IRS is keeping a tab. Normally, if your investments earn money, you owe tax on those gains. In a tax-deferred account, that bill gets postponed until you withdraw the money in retirement. The longer the delay, the more time your full balance has to compound and grow.
You contribute money you've already paid income tax on. No upfront deduction — you're putting in dollars the IRS has already seen. The upside depends on the account: in a Roth, those dollars grow and come out in retirement completely tax-free. In a regular brokerage account, you'll still owe tax on gains when you sell.
Traditional (Pre-Tax) Solo 401(k).
This is THE must-have for freelancers who earn 1099 income. Read all about the Solo 401(k) here. If you earn W-2 income from a client, those funds cannot be used in a Solo 401(k).
You contribute pre-tax dollars — directly from your business bank account — and claim a significant tax deduction. For 2026, that's up to $72,000 if you're under 50, up to $80,000 with the standard catch-up, or up to $83,250 if you're in the special "super catch-up" window of ages 60–63. See the full contribution limits here.
Your investments inside the Solo 401(k) — a single Target Date Fund or a Three-Fund Portfolio of ETFs — grow tax-deferred until retirement. You'll pay ordinary income tax when you withdraw after 59½, almost certainly at a much lower rate than during your working years. If you haven't kicked this off a Solo 401(k), get to it.
Note: there are two IRS rules, Rule 72(t) and The Rule of 55 that can allow earlier penalty-free withdrawls before the standard age of 59½.
Roth Solo 401(k)
Contributions go in after-tax, so there's no deduction up front. But the investments grow tax-free, and withdrawals in retirement are tax-free too. Sounds appealing, and it is —, but for many of us in our peak earning years, the pre-tax Traditional Solo 401(k) potentially is the smarter move.
In my case, my taxable income gets into the 35% tax bracket. Getting that deduction now, at a high marginal tax rate, beats the alternative. I am mostly using a pre-tax Solo 401(k). If your marginal tax rate is in the 12% or 22% brackets, a Roth may make sense.
Read about how your tax rates work here.
Mega Backdoor Roth Solo 401(k)
This is an advanced contribution type that requires a custom plan document from a provider like MySolo401k — your standard Schwab or Fidelity Solo 401(k) won't cut it. Here's how it works: after you've made your regular employee contributions ($24,500 for 2026) and your employer contributions (you are also the employer), there's often a gap left before you hit the overall IRS limit.
The Mega Backdoor Roth lets you fill that gap with additional after-tax contributions, which are then converted to Roth. The result: more money growing tax-free. In 2026, the maximum total Solo 401(k) contribution across all types is $83,250 for ages 60–63, or $72,000 for those under 50. More on this in an upcoming post.
Backdoor Roth IRA
The ‘backdoor’ is the funding method that you need to use if your modified adjusted gross income (MAGI) is over $153,000 to make a full contribution to a Roth IRA, while joint filers must have a MAGI of less than $242,000. If you earn under these limits, you can fund the Roth IRA directly.
For the backdoor method, contributions go in after-tax into a Traditional IRA. A few days later, you do a 'Roth conversion' and roll them into a Roth IRA, where they grow tax-free and are not taxed on withdrawal. The Backdoor Roth gets around the Roth IRA income limits that would otherwise lock higher earners out of contributing directly.
The 2026 contribution limit (how much money you can put in) is $7,500 ($8,750 if you're 50 or older). Yes, this is legal. Make sure your accountant knows each year you do a conversion.
Health Savings Account (HSA)
This underappreciated account is a triple-tax whammy. Contributions are pre-tax (a deduction off your taxable income). The investments grow tax-free. And if you spend the funds on qualified medical expenses, withdrawals are tax-free too. Read about the HSA here.
After age 65, you can spend the funds on anything — non-medical spending is taxed as ordinary income at that point, making it behave a lot like the Traditional Solo 401(k). The 2026 limits: $4,400 for individuals, $8,750 for a family plan.
The HSA account (I use Fidelity) has the same investment choices as normal brokerage or Solo 401(k) account. Want to max this out? Invest the money and if you can afford it don’t reimburse yourself. Keep your reciepts and then pull the money out 10-15 years from now. Yes, it’s allowed.
529 Plan
Saving for your kid's education? Contributions may be partially or fully tax-deductible, depending on your state, or not deductible at all. For all states, contributions grow tax-free and can be withdrawn tax-free for qualified education expenses. You can also roll up to $35,000 (lifetime limit, not per year) from a 529 into a Roth IRA for the beneficiary, which is a nice option if college doesn't pan out the way anyone planned.
Don't underestimate compounding here. $400/month for 18 years, growing at 7% in a Three-Fund Portfolio, gets you around $160,000. Play with a compounding calculator here — it's almost magical. Check your state's 529 plan here.
Taxable Brokerage Account
A regular brokerage account — Schwab, Fidelity, E*Trade, wherever you park your investments. You buy stocks, ETFs, and mutual funds. You can run the same Three-Fund Portfolio here that you hold in your Solo 401(k). A lot of people overlook this account, not realizing it has a meaningful tax advantage once you understand it.
Here's the angle: hold your investment for at least 12 months before selling, and you only pay the long-term Capital Gains Tax (CGT) rate — 15% for most people, not your regular marginal tax rate which likely much higher. Qualified dividend payments are taxed at the CGT rate, too. If your effective tax rate is around 25–30%, dropping to 15% on your investment gains is a real saving.
This is why wealthy people often pay a lower overall tax rate than the rest of us working stiffs — their income comes from investments, not labor. We're learning to play the same game. More on your tax rates here.
High-Yield Savings Account
There is no tax advantage on this one, and the lowest earner, but it’s the safest.
Contributions are after-tax going in — no deduction. Interest earned is taxed as ordinary income the year you receive it, at both the federal and state levels. (Eeeew!). The returns have also historically been the lowest among these accounts. The other accounts use stocks, ETFs, and bonds — assets that have grown an average of 7–10% per year over the long term but are much more volitile.
Cash in a bank is a mediocre investment. It is liquid, though — use it instantly — so it's the right home for your emergency fund. That's it.
VBIL — Vanguard 0–3 Month Treasury Bill ETF
A smarter place to park emergency cash if you live in a high-tax state.
The VBIL ETF holds short-term U.S. Treasuries and trades like a stock — no minimum investment, buy it through any brokerage account. VBIL often pays what a HYSA pays.
The tax angle: because VBIL invests 100% in direct U.S. government obligations, its income is exempt from state and local taxes in most states — including California, Connecticut, and New York. You still owe federal income tax, but skipping state tax is a meaningful upgrade over a high-yield savings account, which gets hit at every level. More on VBIL at Vanguard's site. Confirm the state-tax treatment with your accountant, as the percentage of U.S. government obligations can shift slightly year to year.
It’s best to keep VBIL in a seperate brokerage account (You can gave mulitple brokerage accounts with providers like Schwab, Fidelity etc) so the interest paid by VBIL is not lost in the mix. Most brokerages do not break-out state-tax exempt payments. This way it’s easy to track what income is exempt.
Why hasn't my accountant mentioned even half of this?
What your accountant looks like —according to Disney.
Hold on a second before you call them and shout, “WTF!?”
I hear from freelancers and solo business owners all the time that their accountant hasn't mentioned the Solo 401(k) or the Backdoor Roth IRA. In a way, it's not their job. They do your taxes — they're not financial advisors.
The U.S. tax system is an absolute shitshow of complicated accounts and rules. That alone keeps them busy.
Drink more coffee, keep exploring this site and others, and learn all you can. Then tell your accountant to send this site to their clients.
Try this on:
EARN a little more. SPEND a little less. INVEST the difference.
Keep Calm and Invest On
Revisit this list from time to time. If you're early in your career, you probably won't have the cash to fund many of the accounts, but it’s the investing knowledge that is important. Start with the Traditional pre-tax Solo 401(k) and contribute as much as you can. The early money counts the most — it grows the longest, compounding at 7% year after year after year.
Have a regular job and a freelance business? If you have a day job with an employer 401(k), max that out up to when their matching contributions end — that's free money, don't miss it — then move to the Traditional Solo 401(k) > HSA > Backdoor Roth IRA.
Higher-income earners can really stack these, in this order: Traditional pre-tax Solo 401(k) > HSA > Backdoor Roth IRA > Mega Backdoor Roth Solo 401(k) > Taxable Brokerage Account. Throw the 529 in the mix if you have kids.
Suggestions, questions, thoughts? Hit me up below.
You're busy invoicing, not studying ETFs. A target-date fund is the one-fund retirement plan for freelancers: buy once, automate the deposits, and let time do the heavy lifting.