What type of IRA is specifically designed for self-employed individuals and allows for a higher maximum contribution?

The SEP IRA, or Simplified Employee Pension Individual Retirement Account, is specifically designed for self-employed individuals and small business owners. This type of retirement account allows for significantly higher contribution limits compared to other types of IRAs, such as Traditional or Roth IRAs.

For the tax year 2023, the contribution limit for a SEP IRA is the lesser of 25% of the employee's compensation or $66,000. This higher limit makes it an attractive option for self-employed individuals looking to maximize their retirement savings. The contributions to a SEP IRA are also tax-deductible, further incentivizing self-employed individuals to use this vehicle for retirement planning.

In contrast, Traditional and Roth IRAs have much lower contribution limits (for instance, $6,500 for the 2023 tax year, with a catch-up contribution for those over 50). A SIMPLE IRA, while also geared towards small businesses, has contribution limits that are lower than those of a SEP IRA, making SEP IRAs particularly beneficial for higher earners who wish to save more for retirement.