Guides / Retirement savings

By NorseHorse. Updated October 16, 2026. General information, not tax or investment advice; confirm your situation with a tax professional.

Tips count as compensation for an IRA, so a server, bartender or barber can put up to $7,500 into an IRA for 2026 ($8,600 at 50 or older), as long as they earned at least that much. If your job offers a 401(k), you can defer up to $24,500 there as well. If you work for yourself, a SEP-IRA or solo 401(k) lets you save more, and the Saver's Credit gives lower earners part of their contribution back.

Tips count as compensation

You can only contribute to an IRA from compensation, and your total contribution can't be more than your taxable compensation for the year. Publication 590-A defines compensation as wages, salaries, tips, professional fees, bonuses and other pay for personal services. Cash tips and card tips both count, along with your hourly wage.

If you're self-employed, compensation is your net earnings from the business, reduced by two things: the deduction for retirement contributions made for you and the deductible half of your self-employment tax. Gross app payouts aren't the number; profit after expenses is.

IRA and Roth IRA limits for 2026

The $7,500 limit ($8,600 at 50 or older) covers all your traditional and Roth IRAs combined, not each one. There's no age limit on making regular contributions to either kind.

• Traditional IRA: contributions may be deductible now, and you pay tax when you take the money out. If neither you nor your spouse is covered by a retirement plan at work, your income doesn't limit the deduction. If you are covered, the deduction phases out at the incomes below.
• Roth IRA: you can't deduct contributions, but qualified distributions are tax-free. How much you can put in shrinks and then stops as income rises.

You don't have to fund a traditional IRA by December 31. Contributions for 2026 can be made up to the due date of your 2026 return, not counting extensions. If you contribute between January 1 and that deadline, tell the IRA provider which year the money is for.

If your job offers a 401(k)

For 2026 you can defer up to $24,500 of pay into one. If you're 50 or older you can add a catch-up of $8,000, for $32,500 in total. If you turn 60, 61, 62 or 63 in 2026, your catch-up is $11,250 instead.

The deferral limit is per person, not per plan. If you have two jobs with 401(k)s, or a job plan and a solo 401(k), all your deferrals together count against the one $24,500 limit.

If you're self-employed: SEP-IRA and solo 401(k)

Booth-rent stylists, contract drivers and event bartenders can set up their own plan. Contributions you make for yourself are deducted on Schedule 1 (Form 1040) (line 16 on the 2025 form), not on Schedule C. Schedule SE starts from Schedule C profit, so these contributions lower your income tax but not your self-employment tax.

SEP-IRA

Only the employer contributes to a SEP, and when you work for yourself, that's you. For 2026 a SEP contribution can't be more than the lesser of 25 percent of compensation or $72,000. For your own account the contribution and your net earnings depend on each other, so Publication 560 has you figure it with a reduced rate: 20 percent of your net earnings from self-employment. You can set up a SEP for 2026 as late as your return's due date, including extensions, and fund it by then too. A SEP may accept Roth contributions, but it isn't required to.

Solo 401(k)

A one-participant 401(k) covers a business owner with no employees, or the owner and a spouse. You contribute in two roles:

• As the employee: elective deferrals up to $24,500 for 2026 (plus the catch-ups above), but no more than your compensation.
• As the employer: a nonelective contribution of up to 25 percent of compensation, which for a self-employed owner takes a special computation.

Together, not counting catch-ups, the 2026 total can't exceed $72,000. Because the employee part isn't a percentage of profit, a solo 401(k) usually lets a lower-profit business save more than a SEP does. The timing is tighter: you must elect your employee deferrals by the end of the tax year. A sole proprietor with no employees can adopt a new 401(k) after the year ends, but only by the filing deadline without extensions. In that first plan year only, a sole proprietor who is the only employee can make deferrals for the prior year up to that same deadline. Once the plan holds $250,000 or more at year end, it generally has to file Form 5500-EZ.

The Saver's Credit

The Saver's Credit gives back 50, 20 or 10 percent of up to $2,000 you put into an IRA, 401(k) or similar plan ($4,000 if married filing jointly), depending on your adjusted gross income and filing status. You claim it on Form 8880. To qualify you must be 18 or older, not claimed as a dependent on someone else's return, and not a student. For 2026 the bands are:

2026 is the last year this works the way it does now. The IRS says that starting in 2027 the Saver's Match replaces the Saver's Credit for retirement contributions: the federal government will deposit a match of up to 50 percent of what you save, up to $1,000 a person a year, straight into your retirement account. The rules were still being written when this guide was checked.

A worked example

You tend bar on a W-2 and earn $36,000 in wages and tips in 2026, single, with no 401(k) at work. You put $2,000 into a Roth IRA.

• Your tips and wages are compensation, and $36,000 is far above $2,000, so the full amount is allowed.
• You're under $153,000, so the Roth limit doesn't reduce your contribution.
• If your AGI is $36,000, you're in the 10 percent band for a single filer, so the Saver's Credit is $200. At an AGI of $24,000 the rate would be 50 percent, or $1,000, but the credit can't be more than your income tax, so at that income it may come out smaller.

Now a driver with $40,000 of Schedule C profit and no other job. The deductible half of self-employment tax on that profit is about $2,826, which leaves $37,174. A SEP at the 20 percent rate allows about $7,435. A solo 401(k) allows that same employer amount plus employee deferrals of up to $24,500 (deferrals can't be more than your compensation), with the total under $72,000. Pub 560 and your plan provider will give you the exact figures.

Common questions

Can I contribute to an IRA if all my income is tips?

Yes. Tips are compensation for IRA purposes. Your contribution can't be more than your taxable compensation, so report your tips: they're what make the contribution possible. See reporting tips to your employer.

Can I have a 401(k) at work and a solo 401(k) for side gigs?

Yes, but your employee deferrals across both share one $24,500 limit for 2026. The employer contribution to your solo plan is figured separately from your side business's profit.

Is it too late to save for 2026?

Not for an IRA or a SEP. Traditional IRA contributions for 2026 can be made up to the 2026 return due date, not counting extensions, and a SEP can be set up and funded as late as the due date including extensions. Employee deferrals to a solo 401(k) you already have must be elected by December 31, 2026. A new plan adopted in 2027 can take 2026 deferrals only in its first year and only by the 2026 return due date, without extensions.

Do retirement contributions lower my self-employment tax?

No. They come off on Schedule 1, and self-employment tax is figured from Schedule C profit before them. The tip tax calculator shows the income tax side, and the year-end checklist lists what to do before December 31.

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