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Key takeaways
- Both plans top out at $72,000 in total contributions for 2026, before catch-ups.
- A Solo 401(k) usually allows much more at moderate incomes, because you contribute as both employee and employer.
- A SEP IRA is simpler and can be opened and funded as late as your filing deadline, including extensions.
- If you have eligible employees, a Solo 401(k) is off the table — and a SEP must cover them too.
When you work for yourself, retirement contributions are one of the few deductions that also build wealth. The two most common plans for self-employed people are the SEP IRA and the Solo 401(k). They look similar, but at most income levels they produce very different results.
The 2026 limits
| SEP IRA | Solo 401(k) | |
|---|---|---|
| Employee deferral | None | Up to $24,500 |
| Catch-up, age 50+ | None | $8,000 ($11,250 at ages 60–63) |
| Employer contribution | Up to 25% of compensation | Up to 25% of compensation |
| Total cap (before catch-ups) | $72,000 | $72,000 |
| Roth option | Allowed under newer rules, if your provider offers it | Yes, widely available |
For sole proprietors and single-member LLCs, "25% of compensation" works out to about 20% of net self-employment earnings, after subtracting half of your self-employment tax. For S-corp owners, it's 25% of your W-2 salary — another reason your salary level matters.
How much you can actually put in
Consider a sole proprietor, under 50, with $100,000 of net profit. After the deduction for half of self-employment tax, net earnings are about $92,900.
- SEP IRA: about 20% of $92,900, or roughly $18,600.
- Solo 401(k): the same $18,600 employer contribution plus a $24,500 employee deferral — roughly $43,100.
That gap is why the Solo 401(k) usually wins for people earning under a few hundred thousand dollars. At very high incomes, both plans hit the $72,000 cap and the difference narrows to the catch-up contribution.
Other differences that matter
Employees
A Solo 401(k) is only for businesses with no eligible employees other than the owner and the owner's spouse. A SEP can be used with employees, but you must contribute the same percentage of pay for every eligible employee as you do for yourself — which can get expensive.
Paperwork
A SEP is essentially an IRA with a one-page plan document and no annual filing. A Solo 401(k) requires a plan document and, once plan assets exceed $250,000, an annual Form 5500-EZ.
Roth contributions
Solo 401(k) employee deferrals can usually be made as Roth contributions — no deduction now, tax-free growth later. That's useful in lower-income years or if you expect higher rates in retirement.
Loans and backdoor Roth
Many Solo 401(k) plans allow loans; SEPs don't. And because SEP balances count toward the pro-rata rule for IRA conversions, a SEP can complicate a backdoor Roth IRA strategy. A Solo 401(k) balance doesn't.
Which one to choose
- Choose a Solo 401(k) if you have no employees, want to maximize contributions at a moderate income, want a Roth option or plan to use backdoor Roth contributions.
- Choose a SEP IRA if you want the simplest possible setup, you're deciding after year-end, or your income is high enough that both plans hit the same cap anyway.
- Look beyond both if you're consistently earning well above the cap and want to shelter more — a cash balance plan layered on a 401(k) can allow much larger deductions for older, high-earning owners.
Deadlines
A SEP IRA can generally be established and funded up to your tax filing deadline, including extensions. A Solo 401(k) can now also be established after year-end, up to the filing deadline, and employer contributions can be made through the extended due date. The timing rules for employee deferrals are stricter and vary by entity type and whether it's the plan's first year — so if you want the full deferral, plan to open the account before December 31 and confirm the timing with your adviser.
Retirement contributions are part of every ExcelTax strategy review. We calculate your maximum each fall, when there's still time to act on it.
This article is general information, current as of September 2026, and isn't tax advice for your situation. Figures are federal unless noted, and indexed amounts change each year — confirm current numbers with your tax pro before acting.