Wells Fargo, AARP flag major concerns on 401(k)s, IRAs for the self-employed

In my years of experience reporting on personal finance matters, I've found a common trait American workers share.

Whether they are working for an employer or are self-employed, people saving for retirement have a common concern about finding the right financial tools - and using them effectively.

Financial services company Wells Fargo and AARP, the nonprofit organization that advocates for older Americans, offer important facts to consider as self-employed Americans contribute to one-participant 401(k) plans and Individual Retirement Accounts (IRAs) for their post-career lives.

"As a small business owner employing only owners and spouses, you may be able to contribute more with a 401(k) than with other retirement plans," wrote Wells Fargo.

"An Individual 401(k) may work well if you have income of less than $200,000 and want to maximize your retirement savings," the company added. "With an Individual 401(k) you have the flexibility to change how much your business contributes from year to year."

Wells Fargo also addresses IRAs for people running businesses.

A Simplified Employee Pension (SEP) IRA is a retirement arrangement that allows small business owners to make tax‑deductible contributions through a straightforward plan to establish and administer.

When a business has employees, the employer may also be required to contribute to their accounts under the plan.

"A Simplified Employee Pension (SEP) plan may work well if you want a low-cost, easy-to-maintain retirement plan for you and your employees," Wells Fargo wrote.

"Both SEP IRA and Traditional IRA contributions can be made to the same account, and you have the flexibility to change how much your business contributes from year to year."

AARP stresses solo 401(k) concerns

A solo 401(k) plan functions much like a standard 401(k), but it is designed for a business with a single participant, with the option to include a spouse who earns income from that business, according to AARP.

Under this arrangement, the business owner may contribute in two capacities: as the employee and as the employer. For 2026, the contribution limit is $24,500 for those under age 50.

More on personal finance:

• Zillow forecasts big mortgage change for U.S. housing market
• AARP sounds alarm on major Social Security problem
• Dave Ramsey bluntly warns Americans on 401(k)s

Individuals ages 50 to 59 or 64 and older may contribute $32,500 through the combination of the standard limit and the $8,000 catch‑up allowance. Workers ages 60 to 63 fall under a separate SECURE 2.0 Act of 2022 catch‑up tier that permits $35,750 in employee contributions for 2026.

"SECURE 2.0 gives sole proprietors more flexibility in starting and contributing to a solo 401(k)," wrote AARP. "Previously that had to be done by the end of a tax year for the contribution to be deductible for that tax year. Now, you have until the tax-filing deadline in April of the following year."

"If you hire staff for your business, you will no longer qualify for the solo 401(k)," AARP emphasized.

Employer contributions may also be added, generally up to 25 percent of net self‑employment earnings, but total combined contributions for 2026 cannot exceed $72,000 (plus the applicable catch-up amount).

Contributions may be made on a pretax or Roth basis, though catch-up contributions for high earners must be Roth.

Wells Fargo tackles Traditional IRAs, Roth IRAs

Traditional and Roth IRAs represent the two primary forms of individual retirement accounts, each offering its own set of characteristics. When evaluating which type is more suitable, a central consideration is the timing of the income taxes that will apply to the savings, Wells Fargo explains.

Traditional IRAs

• Traditional IRAs provide the opportunity for investment gains to compound without current taxation.
• Taxes on those earnings are not owed until the funds are withdrawn from the account.
• Depending on income level, contributions to a Traditional IRA may qualify for a tax deduction.
• Postponing taxes can support a larger long‑term accumulation of assets.
• Traditional IRA contributions have no upper age limit as long as the individual - or a spouse in a joint return - has earned income.
  
  (Source: Wells Fargo)

Roth IRAs

• Roth IRAs allow investment growth to accumulate without future taxation.
• Earnings can be withdrawn tax‑free once the account has been open for more than five years and the individual is at least age 59-and-a-half, or if the distribution meets criteria such as disability, the first‑time homebuyer exception, or payment to beneficiaries after death.
• Because Roth IRA contributions are made with after‑tax dollars, no deduction is available at any income level.
• Contributions may be made at any age provided the individual - or a spouse on a joint return - has earned income and falls within the applicable MAGI limits.
  
  (Source: Wells Fargo)

Related: Dave Ramsey, AARP raise red flags on 401(k)s, IRAs

The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.

This story was originally published May 5, 2026 at 8:48 PM.