Retirement Savings for NYC Drivers: IRA, SEP, 401(k)

In short: if you drive as an independent contractor, no employer puts money into a retirement plan for you. You can do it yourself. For 2026, you can put up to $7,500 in an IRA, and with a SEP IRA or solo 401(k) you can also put in money as your own "employer": up to 20% of your net earnings from self-employment, with an overall cap of $72,000. A solo 401(k) adds an employee deferral of up to $24,500. Lower-income drivers may also get the Saver's Credit.

This is general information from IRS publications, not tax or investment advice. Limits are for tax year 2026, from IR-2025-111 and Notice 2025-67.

The 2026 limits

IRA vs SEP IRA vs solo 401(k) vs SIMPLE

A SEP IRA does not stop you from also contributing to your own IRA. Publication 560 says "Employer contributions to a SEP IRA won't affect the amount an individual can contribute to a Roth or traditional IRA." See SEP IRA and solo 401(k) for definitions.

Which one should you start with?

Think about it in layers, from simplest to most work:

• Just starting, or money is tight: an IRA is the easiest. You can open one at most banks and brokerages and put in small amounts during the year, up to $7,500 for 2026. A traditional IRA contribution may lower your taxable income now. A Roth IRA contribution doesn't, but qualified withdrawals later are tax-free. The Roth has income limits (table above). The traditional IRA deduction phase-outs only matter if you or your spouse are covered by a retirement plan at work, the IRS says.
• A good year with money left over: a SEP IRA lets you put in much more than an IRA, based on your profit. Publication 560 says "You don't have to make contributions every year." That suits drivers whose income goes up and down with the season, gas prices or app demand.
• You want the biggest total from a modest profit: a solo 401(k) lets you add the $24,500 employee deferral on top of the 20% employer part. In the example below, that turns a $9,294 SEP limit into about $33,794. The trade-off is more setup and paperwork, so ask the provider what forms they need.

You can't put in more than you earn. If your net profit is small, your limits shrink with it. If a slow year means you can't save at all, that's normal: the SEP has no yearly minimum.

Why it's 20%, not 25%

Plans often say the employer may contribute up to 25% of compensation. For a self-employed person, IRS Publication 560 converts that with its Rate Table for Self-Employed: a 25% plan rate becomes 0.200000, or 20%. You apply it to net earnings from self-employment, which means:

1. your net profit (Schedule C line 31: fares and earnings minus business expenses), then
2. minus your deduction for half of self-employment tax (Schedule 1, line 15).

Publication 560's note under the table says the deduction for employer contributions "can't be more than 20% of your net earnings."

A worked example (fictional driver)

Nadia drives for an app in Queens. Her 2026 net profit on Schedule C is $50,000. These numbers follow the IRS worksheets, rounded to the dollar. They are an illustration, not a prediction of your taxes.

The 15.3% rate (12.4% Social Security + 2.9% Medicare) and the "deduct the employer-equivalent portion" rule are on the IRS self-employment tax page. The 92.35% step is from the Schedule SE example in Publication 560. Our self-employment tax guide walks through it.

Your contribution lowers income tax, not SE tax

Publication 560 says sole proprietors deduct the contributions they make for themselves on line 16 of Schedule 1 (Form 1040), not on Schedule C. That means the deduction can lower your income tax, but your Schedule SE profit, and so your Social Security and Medicare tax, stays the same. In Nadia's example, she still owes about $7,065 of SE tax whether or not she opens a SEP.

The same is true of the half-SE-tax deduction itself: the IRS says it "only affects your income tax." Publication 560 still subtracts it in the plan worksheet (step 2 above) to find the amount the 20% applies to.

The Saver's Credit

The Saver's Credit is a tax credit of 50%, 20% or 10% of up to $2,000 you contribute ($4,000 if married filing jointly), so the most it can be is $1,000 ($2,000 joint). You must be 18 or older, not a full-time student and not claimed as someone's dependent. IRA contributions and solo 401(k) deferrals count. Rollovers don't. For 2026 the income limits are $40,250 (single), $60,375 (head of household) and $80,500 (married filing jointly). The full tier table is on can drivers get the Saver's Credit.

Social Security: the other retirement account

When you pay self-employment tax, you also earn Social Security credits. For 2026 the SSA gives one credit per $1,890 of earnings, up to four a year. Drivers who under-report income or don't file can end up with too few credits. See do drivers earn Social Security credits.

Mistakes that cost drivers money

• Using gross fares instead of net profit. Your SEP and solo 401(k) limits come from net profit after expenses and after half of SE tax, not from what the app shows you earned.
• Putting in too much. Publication 560 says excess SEP contributions are included in income for the year. Run the worksheet or ask a preparer before a big deposit.
• Not filing. If you don't file a return with Schedule C and Schedule SE, you have no net earnings on record, no basis for a SEP, and no Social Security credits.
• Forgetting the Saver's Credit. Lower-income drivers who contribute can get part of it back as a credit. It takes Form 8880.
• Paying high fees or buying from a pushy salesperson. A retirement account is a container. Compare fees before you choose what goes in it.

Getting started

Related: health insurance for drivers in 2026, Essential Plan change, quarterly estimated taxes, FHV driver minimum pay, free financial counseling and the money topic.