Updated August 7, 2026. Quick answer: this is the part of an encore business that is worth more than the deductions. Pension income, Social Security and portfolio income do not let you contribute to a retirement account. Self-employment income does. A small consulting business can open a one-participant 401(k) or a SEP-IRA, and the contribution limits are far higher than an IRA’s: for 2026 the one-participant 401(k) elective deferral is $24,500, with a total annual additions limit of $72,000 — or $80,000 including catch-up, and $83,250 for those aged 60 to 63. A SEP is capped at the lesser of 25% of compensation or $72,000 for 2026.
What earned income actually unlocks
The constraint that binds most retired households is not the limit — it is eligibility. Contributions require taxable compensation, and a pension is not compensation. Consulting income is. That single fact converts a modest encore business into an account-opening event, and it is why the tax cost of self-employment is not the whole picture: the 15.3% is also what makes the income count.
The choice between the two plans, and the arithmetic that decides it, is already covered properly:
- Solo 401(k) vs SEP-IRA for a sole proprietor — where the 20% comes from, and why the solo plan usually wins at modest income.
- The contribution calculator — checked against the IRS’s own example, including the circularity most calculators get wrong.
- The S-corp owner version, where the base is W-2 wages rather than net earnings.
- Where the SEP catches up, and what happens once you have employees.
Those pages own the maths and this one does not repeat it. What is worth stating here is the shape: the solo 401(k) allows a deferral plus an employer contribution, which is why it reaches a bigger number at a small income, while the SEP is a single percentage-based employer contribution and is simpler to run.
The catch-up tier most people have never heard of
The standard catch-up for those aged 50 and over is $8,000 in 2026. But there is a separate, higher tier: for ages 60 to 63 the catch-up limit is $11,250, which is what produces the $83,250 total annual additions figure for that age band.
It is a four-year window, and it lands exactly where an encore business usually starts. If you are inside it, the difference between contributing at the standard catch-up and the enhanced one is real money for four years and then it closes.
Is there an age limit? Honestly
For a Roth IRA the IRS states it directly: “You can contribute at any age if you (or your spouse if filing jointly) have taxable compensation.”
For a traditional IRA we are going to be careful, because the IRS page we read does not say it in the present tense. What it says is historical: “Prior to Jan. 1, 2020, you were unable to contribute if you were age 70½ or older.” That describes a rule that was removed, and the natural reading is that no upper age limit now applies — but that is our inference from a sentence about the past, not a current-tense IRS statement, and we are labelling it as such rather than presenting it as a quote. If it matters to your decision, confirm it against the current-year Publication 590-A.
The requirement that does bind at every age is compensation. No earned income, no contribution — which is the whole reason this page exists.
The spousal route
If one of you has earned income and the other does not, the IRS’s Roth language above already contains the answer — “or your spouse if filing jointly” — so a working spouse’s compensation can support an IRA contribution for the other. In a household where one person starts consulting after retirement, that quietly doubles what the household can put away.
Sources and limits
Contribution limits quoted 2026-08-07 from the IRS: 401(k) and profit-sharing plan contribution limits (tax year 2026) and SEP contribution limits (tax year 2026); the IRA age language from Traditional and Roth IRAs. The SEP’s compensation ceiling — the dollar limit on how much compensation can be counted — was not confirmed and is deliberately not stated here. These are annual figures and every one of them moves. Plan-choice arithmetic belongs to the solo-401(k) pages and is not restated. General information, not tax advice.
And if the side income is consulting, the account you can now fund is a reason to price the work properly rather than gratefully: what the rate arithmetic actually says.
If the other income is employment rather than self-employment, your state may already have enrolled you in something: state auto-IRA programmes default you into a Roth — and a Roth has an income limit that nobody checks on your behalf.