Daperis CPAHealth Insurance and Retirement for the Self-Employed
No employer, no benefits? That's just not true. A W-2 employee gets pre-tax health insurance and a 401(k) match without thinking twice about it. Go out on your own and it can feel like both of those disappeared. They didn't. You just have to set them up yourself, and in some ways, what's available to a self-employed owner is actually better than what most employer plans offer.
Health Insurance: Building Your Own Pre-Tax Benefit
You can deduct 100% of your premiums. If you're self-employed with net profit, a partner with self-employment earnings, or a more-than-2% S-Corp shareholder, you can generally deduct the full cost of medical, dental, vision, and qualifying long-term care premiums for yourself, your spouse, your dependents, and children under 27.
It's above the line, so you don't need to itemize. This deduction reduces your taxable income directly on Schedule 1, using Form 7206. You get it whether or not you itemize deductions elsewhere on your return.
There's a real disqualifier people miss. If your spouse has access to employer-sponsored coverage, even if they don't enroll in it, you generally can't claim this deduction for the months that coverage was available to you. Availability is what matters, not whether you actually used it.
If you're an S-Corp shareholder, there's an extra step
The deduction still works, but the mechanics are different. The S-Corp has to pay or reimburse your premiums and include that amount in Box 1 of your W-2. You then claim the deduction on your personal return. Skip the payroll step and pay the premiums personally without running them through the business, and the deduction gets shaky fast. Done correctly, though, the premiums aren't subject to FICA tax, which mirrors the pre-tax treatment a W-2 employee gets automatically.
Retirement: Solo 401(k) vs. SEP IRA
Both let you shelter significant income from tax each year, but they get there differently, and the difference matters more than most people realize.
Solo 401(k). You contribute in two capacities: as the employee, up to $24,500 for 2026, and as the employer, up to 25% of compensation, with a combined 2026 cap of $72,000. Catch-up contributions push that higher: $80,000 if you're 50-59 or 64 and older, and $83,250 in the enhanced catch-up range for ages 60-63. Because you're filling both roles, this plan tends to let you shelter meaningfully more than a SEP IRA at low and middle income levels. The tradeoff is a bit more setup and an annual filing requirement once the account grows past a certain size. One critical thing to consider: a solo 401(k) is strictly for business owners with no employees (other than a spouse). If you hire eligible employees, you will have to include them in a traditional 401(k) plan subject to nondiscrimination testing.
SEP IRA. There's no employee deferral piece at all. The entire contribution comes from the employer side, capped at 25% of compensation, up to the same $72,000 ceiling for 2026. It's simple to set up, has essentially no ongoing paperwork, and can be opened and funded as late as your tax filing deadline, including extensions. The gap between the two plans narrows as your income rises, but at lower income levels, the SEP's lack of an employee deferral component means you're generally sheltering less than you would with a Solo 401(k).
One timing detail that trips people up
A Solo 401(k) has to be legally established by December 31 of the tax year to make employee deferrals for that year, even though the actual contribution can be funded later. A SEP IRA has no such deadline. If you're setting one up late in the year, that difference alone can decide which plan is actually available to you.
Keep It Simple / Key Takeaway 🍕
Being self-employed doesn't mean going without the benefits a W-2 job hands you automatically. It means building them yourself, on your own terms, sometimes with a higher ceiling than an employer plan would ever offer. The catch is that nobody sets it up for you. If you haven't looked into either of these, let's have a conversation to help you get the benefits you deserve.
Disclaimer: This article is for educational and informational purposes only and is not intended as financial, investment, legal, or tax advice. The author assumes no liability whatsoever in connection with its use. This content is not an exhaustive explanation of any topic, practice or process. You should always seek the advice of a licensed professional before making any accounting, tax, financial, investment or legal decision.