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Self-employed? Know your options for old accounts

Key takeaways

  • Before you decide what, if anything, to do with your old retirement or health savings accounts, be sure to understand your options. 
  • Being self-employed qualifies you to continue to save as much as $69,000 in tax-year 2024 in a retirement account like a SEP IRA. 
  • Consider your options for prior health savings accounts (HSAs)—since savings are not “use it or lose it” and can potentially grow over time.  
Like many of us, you may have accumulated a few employer-sponsored accounts, such as a 401(k) or health savings account (HSA), during your working life. If you decide to become self-employed, you could simply leave those accounts where they are. Before you make any decisions, though, be sure to know your options-and the potential impact on your long-term savings strategy.  

4 options for a 401(k) from a former employer

Here are choices to consider for an old 401(k) from a prior job:    
  • Keep your money where it is (if allowed) – Continues tax-deferred growth potential, but you can no longer contribute to the plan. 
  • Roll over your 401(k) to an IRA – Consolidates 401(k)s into one account, such as a rollover IRA, while continuing tax-deferred growth potential. 
  • Roll over to your own small business retirement plan (if allowed) – Consolidates 401(k)s into a new workplace retirement account, like a SEP IRA or self-employed 401k, much like you would do if you were switching jobs to another employer while continuing tax-deferred growth potential.  
  • Cash out – Subjects cash to state and federal taxes and, before age 59½, a 10% withdrawal penalty may apply. 
Learn more about your options for an old 401(k)

Continuing to save with a SEP IRA or self-employed 401(k)

Whatever you decide to do with older plans, being self-employed means you can continue to save for retirement with accounts designed for you. For example, a Simplified Employee Pension Plan (SEP IRA) or self-employed 401(k) can help self-employed individuals or small-business owners save as much as $69,000 in tax-year 2024 for retirement in a tax-advantaged way. If you are a sole proprietor, a business owner, or in a partnership; or if you earn self-employment income by contracting or freelancing, a SEP IRA or self-employed 401(k) may fit your needs.
Not sure which plan is right for your retirement needs? Take our 5-minute quiz to find out which may fit your needs.

Don’t forget your health savings account (HSA)

If you have an HSA, you may want to consider what to do with that as well. Remember, any savings in your HSA aren’t “use it or lose it”—your money can accumulate year over year. And at age 65, you can spend your HSA dollars on anything, without incurring a 20% penalty (withdrawals not spent on qualified medical expenses will be taxed as income at your current tax rate).  
Tip: According to research by Fidelity Financial Solutions, you should plan on factoring in approximately 15% of your retirement expenses will be related to health care expenses, year in and year out. In general, the more health issues you expect, the higher the retirement income replacement rate you may want to work into your retirement income plans. 
This chart shows average annual household health care expenses by age group. Spending ranges from $3,737 per year for those under age 55 to $7,200 per year for those in households over age 75.
Source: Consumer Expenditure Survey data 2022, average US retiree health care expenses by age.
Combining your retirement and health savings accounts under one roof is one option to consider; however, before making any decision, be sure to understand and compare all details of any HSA provider’s offering, including investment options, fees, account minimums, potential earnings on cash holdings, and even customer service.

Are you a small business owner?

Find out which small business retirement plan could be right for you.

More to explore

**Be sure to consider all of your available options and the applicable fees and features of each before moving your retirement assets.**

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

This information is general in nature and provided for educational purposes only.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

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