Which Retirement Account Combination Creates Maximum Tax Savings?
If you work for yourself, saving for retirement can seem tricky. You don’t have an employer offering a 401(k) plan or matching your contributions. But that doesn’t mean you’re out of luck. One of the best tools you have is a Traditional IRA. When combined with smart tax saving investments, it can help you lower your taxes today and grow your retirement fund for the future.
In this article, we’ll explore how Traditional IRA tax savings if you’re self-employed can work in your favor, how these accounts fit with other investment options, and what combination creates the most tax savings in 2025.
1. Understanding the Traditional IRA
A Traditional IRA, short for Individual Retirement Account, is a retirement account that lets you set aside money before you pay taxes on it. This means your taxable income goes down in the year you contribute, helping you keep more of your hard-earned money.
When you retire and start taking the money out, that’s when you’ll pay taxes on it. The idea is that by the time you retire, you may be in a lower tax bracket, so you’ll pay less in taxes overall.
For example, if you make $70,000 a year and put $6,000 into a Traditional IRA, you’ll only be taxed on $64,000 that year. That’s an instant tax savings of hundreds or even thousands of dollars, depending on your tax rate.
This is why many experts call it one of the simplest forms of tax saving investments available, especially if you’re self-employed.
2. Why Traditional IRA Tax Savings Matter for the Self-Employed
Being self-employed means you handle your own taxes, including both income tax and self-employment tax. That’s a big financial responsibility. Luckily, the Traditional IRA tax savings if you’re self-employed can make a real difference.
Every dollar you contribute helps lower your taxable income. Let’s say you earn $80,000 running your own small business. If you put the maximum amount; $7,000 in 2025 (or $8,000 if you’re 50 or older), into your Traditional IRA, you’ll only pay taxes on $73,000. That’s a big win for your wallet.
Over time, this can add up to thousands of dollars in tax savings, all while your investments grow tax-deferred until you retire. You get the double benefit of tax saving investments and compound growth working together.
3. Combining a Traditional IRA with Other Retirement Accounts
If you’re self-employed, you don’t have to stop with just a Traditional IRA. There are other retirement accounts you can use at the same time to boost your total savings and cut down on your tax bill. The most common options include:
SEP IRA (Simplified Employee Pension)
A SEP IRA is designed for self-employed people and small business owners. You can contribute up to 25% of your net income from your business, up to $69,000 in 2025. That’s much higher than the Traditional IRA limit.
Solo 401(k)
A Solo 401(k) is for self-employed individuals who have no employees (except possibly a spouse). This plan lets you contribute both as an employee and as the employer, meaning you can save more each year and take larger tax deductions.
Roth IRA
While a Roth IRA doesn’t give you tax deductions up front, it allows you to withdraw money tax-free in retirement. Combining it with a Traditional IRA can give you both short-term and long-term tax flexibility.
4. Which Retirement Account Combination Creates Maximum Tax Savings?
Here’s where strategy comes in. The goal is to find the right balance of tax saving investments that lower your taxable income now and keep your future taxes low too.
For many self-employed workers, the winning combination in 2025 looks like this:
- Traditional IRA for upfront deductions – Lowers your taxable income today.
- SEP IRA or Solo 401(k) for large contributions – Helps you save even more pre-tax money.
- Roth IRA for future tax-free withdrawals – Gives you flexibility in retirement.
By using both a Traditional IRA and another self-employed plan, you can stack your tax savings and watch your investments grow faster.
Imagine this: you contribute $7,000 to your Traditional IRA and $20,000 to your Solo 401(k). That’s $27,000 less in taxable income this year. Depending on your tax bracket, that could save you $6,000 or more in taxes, money that stays in your pocket or grows in your retirement account.
5. Smart Tax Saving Investments for Your IRA
A retirement account is only as strong as the investments inside it. Once you’ve contributed, you’ll want to make sure your money works hard for you.
Here are some tax saving investments commonly used inside a Traditional IRA:
- Index Funds and ETFs – These track the stock market and tend to grow steadily over time with low fees.
- Bonds – Lower risk and provide steady interest income.
- Mutual Funds – Professionally managed options that spread out your risk.
- Target-Date Funds – Automatically adjust your investment mix as you get closer to retirement.
While you can’t avoid all risks, these types of tax saving investments let you balance growth with safety, ensuring your money keeps working while you enjoy the Traditional IRA tax savings if you’re self-employed.
6. Common Mistakes to Avoid
Even with great tools like a Traditional IRA, there are a few pitfalls to watch out for.
- Missing Contribution Deadlines – You can usually contribute to your IRA up to the tax filing deadline for that year (April 15, 2026, for 2025 taxes).
- Withdrawing Too Early – If you take money out before age 59½, you’ll likely pay a 10% penalty plus taxes.
- Ignoring Required Minimum Distributions (RMDs) – Starting at age 73, you must withdraw a certain amount each year or face penalties.
- Not Coordinating Accounts – Using both a Traditional IRA and a Solo 401(k) is powerful, but make sure your total deductions and contributions stay within the IRS limits.
Avoiding these mistakes will help you protect your tax savings and keep your retirement plan on track.
7. Planning for 2025 and Beyond
As we head into 2025, tax laws continue to evolve, and contribution limits often rise slightly each year. That means your opportunity for Traditional IRA tax savings if you’re self-employed could get even better.
The key is consistency, make saving a habit, not a one-time event. Even if you can’t contribute the maximum, regular contributions add up. Small amounts, invested wisely in tax saving investments, can grow into a comfortable nest egg over time.
You might also consider meeting with a tax professional or financial advisor. They can help you calculate the best mix of Traditional IRA, Roth IRA, and self-employed retirement plans to get the maximum tax savings based on your income level and goals.
8. Final Thoughts
Being self-employed gives you freedom, but it also means you’re responsible for your own financial future. The good news is that you have powerful tools to help you, especially the Traditional IRA.
When you understand how Traditional IRA tax savings if you’re self-employed work, and combine them with the right tax saving investments, you create a strategy that lowers your taxes now while building long-term wealth.
With careful planning, smart investing, and consistent contributions, you can enjoy both short-term tax savings and long-term financial security. That’s how self-employed individuals can build the best of both worlds, a thriving business today and a comfortable retirement tomorrow.
