Compare similar life situations, assumptions, and retirement tradeoffs.
United States
Work & income
US freelancer: Solo 401(k) or SEP IRA for retirement?
For: Single US freelancer (38), renter, choosing between a Solo 401(k) and a SEP IRA
For a freelancer with uneven income, the better retirement account often depends less on headline limits and more on whether you can save steadily through the.
For: Single Austin tech worker (35), renter, laid off mid-career while pursuing FIRE
An Austin-based single tech worker compares keeping an aggressive FIRE plan, resetting the retirement age after a long job search, or rebuilding cash first.
US self-employed: Solo 401(k), IRA, buffer, or taxable?
For: US self-employed consultant (40), irregular income, deciding whether tax shelter, cash buffer, IRA, or taxable savings comes first
For a self-employed worker with uneven income, the right first dollar may be tax shelter, cash reserve, or taxable flexibility. Compare three funding routines.
Leaving federal service does not automatically make a TSP rollover urgent. For a former federal worker becoming a solo consultant, the first retirement question is usually whether the new business can survive taxes, health coverage, and uneven client income while contributions restart.
This scenario models a single 50-year-old former federal employee with a meaningful TSP balance, a home already in place, and a move into solo consulting. The comparison is deliberately practical: keep the legacy TSP and use a Solo 401(k) only for new self-employment savings, or roll the TSP into a Solo 401(k) after accepting extra setup, recordkeeping, and execution risk.
The model treats the White Coat Investor-style question as a real search signal, not as a command to roll money. TSP.gov says separated participants with enough vested balance can keep money in TSP, while IRS rules make the Solo 401(k) useful for new self-employment contributions. The hard part is sequencing: health coverage resets, quarterly taxes, business overhead, and a first client drought can all hit before the new contribution habit feels stable.
All amounts are shown in today's dollars. The "safe retirement budget" is the cushion-based estimate that leaves roughly a five-year reserve. The optimistic rows intentionally spend some upside on higher retirement living costs and a larger late-life care reserve instead of treating a large untouched balance as the goal.
Variant
Savings effort (avg)
Planned / safe retirement budget
Interest earned by retirement
Base · Keep TSP
$3,251/mo
$7,900 / $8,579
≈$451k
Pessimistic · Keep TSP
$3,251/mo
$7,900 / $7,420
≈$318k
Optimistic · Keep TSP
$2,883/mo
$8,800 / $9,809
≈$611k
Base · Roll to Solo
$3,566/mo
$8,100 / $8,786
≈$455k
Pessimistic · Roll to Solo
$3,566/mo
$8,100 / $7,602
≈$321k
Optimistic · Roll to Solo
$3,164/mo
$9,000 / $9,980
≈$614k
The first pass is simple:
Keeping the TSP is a valid default, not procrastination, when the business is still proving itself and the old plan remains available.
Rolling to a Solo 401(k) can still work, but the model charges it for setup, annual administration, and a larger client-ramp reserve because execution risk is real.
The pessimistic rows are warning cases. They stay above zero capital, but their planned budgets are about $480-$498/mo above the five-year-buffer target, so a bad return path needs lower spending, later retirement, or stronger contributions.
Contribution capacity is the swing factor. The rollover path only looks better if the solo practice reliably supports higher contributions after health premiums, tax reserves, and business overhead are covered.
Compounding still matters: with a 17-year runway from age 50 to 67, the base branches earn about $451k-$455k before retirement and about $1.46M-$1.49M over the full modeled lifetime.
The persona starts with $420k already invested, representing the legacy TSP balance and other retirement savings. That balance stays invested in every branch; the comparison is about how the next 17 years are handled.
The keep-TSP path uses a modest Solo 401(k) contribution while the consulting practice is new, then steps up after age 53. It also includes two transition shocks: a health-coverage reset after leaving FEHB and a client-ramp reserve at age 52. That reflects the Federal Reserve finding that self-employed income is much more likely to vary month to month than employee income.
The rollover path starts a little slower, because the worker pays for advice and plan setup, then contributes more once the business stabilizes. The higher contribution path is intentionally paired with higher friction: annual recordkeeping costs and a larger client-ramp reserve. That keeps the page from pretending that a rollover is free control.
Healthcare is visible because OPM rules make it a transition problem, not an afterthought. A former employee may have a 31-day FEHB extension and may be able to elect Temporary Continuation of Coverage for up to 18 months, but that is a bridge. The model uses a temporary monthly health reset in the first two years rather than assuming the old payroll deduction continues forever.
The cleanest strategy for many former federal workers is to separate two decisions that often get merged. Decision one is where the old TSP balance lives. Decision two is how the new solo business funds retirement contributions.
If the business is still uneven, keeping the TSP can reduce moving parts. The worker can focus on estimated taxes, healthcare, emergency reserves, and a repeatable Solo 401(k) contribution for new income. That does not mean a rollover is wrong. It means the rollover has to earn its place after the new income model works.
The rollover path becomes more persuasive when three conditions are true. First, the worker understands the TSP features being given up. Second, the Solo 401(k) provider and investment menu are clearly better for this person's plan. Third, the business can absorb setup and recordkeeping costs without forcing contribution pauses in weak years.
This is why the model includes a client-ramp shock. A federal paycheck hides a lot of stability: payroll withholding, benefits enrollment, predictable leave, and a known contribution cadence. Self-employment replaces that with invoices, quarterly tax payments, health-plan choices, professional insurance, and months where the income arrives late. A bigger retirement account wrapper does not solve that cashflow problem by itself.
The scenario also avoids a common overclaim: it does not treat the IRS maximum contribution as the normal contribution. IRS rules allow a Solo 401(k) owner to contribute as employee and employer, but affordability depends on profit after taxes and household costs. In this model, the contribution path is meaningful but not maximum-every-year aggressive.
For a former federal worker, the old TSP can be an anchor precisely because it is boring. It lets the person avoid a rushed indirect rollover, keep a familiar institutional account, and test the new business before consolidating everything. The Solo 401(k) still matters, but mainly as the new contribution engine.
Keeping TSP assets is allowed for many separated workers. TSP.gov says separated participants with a vested balance of at least $200 can generally keep money in TSP. That is why the default branch is not a rollover.
Direct rollover mechanics matter. FINRA cautions investors to be careful with rollovers, especially indirect rollovers. The scenario models the decision, not the paperwork.
Solo 401(k) limits are not the same as affordability. IRS rules allow employee and employer contributions for one-participant plans, but the contribution must fit self-employed compensation, tax reserves, and household cashflow.
FEHB does not simply become a permanent self-employed benefit. OPM describes temporary extension and TCC rules after FEHB loss; the model treats health coverage as a first-two-year transition cost.
Social Security depends on reported earnings. The modeled Social Security amount is a planning anchor, not a promise. Patchy or underreported self-employment income can change the actual benefit.
If you are new to the simulator's safety metrics, start with Reading your results. If you want to adjust the contribution steps, health bridge, or one-time rollover costs, see Working with financial entries.
This scenario is an educational model, not personal financial advice. It simplifies taxes, benefits, rollover mechanics, and investment implementation so you can compare ranges and trade-offs.