Solo 401(k) vs. SEP IRA: Which Should the Self-Employed Choose?
Last verified: 2026-08-17.
If you have self-employment income (freelancer, consultant, single-member LLC, or S-Corp owner), two accounts compete for your retirement dollar: the Solo 401(k) and the SEP IRA. For most people, the Solo 401(k) wins. Here is the head-to-head.
Contribution limits (2026)
| Solo 401(k) | SEP IRA | |
|---|---|---|
| Employee deferral | $24,500 | $0 (no employee side) |
| Age-50 catch-up | +$8,000 (or +$11,250 ages 60–63) | — |
| Employer contribution | Up to 25% of W-2 (S-Corp) or ~20% of net SE income (sole prop) | Same formula as Solo 401(k) employer side |
| Combined cap (excluding catch-up) | $72,000 | $72,000 |
| Roth option | Yes (employee side and conversions) | Yes since SECURE 2.0, but few custodians support it |
| Loans allowed | Yes (up to 50% of balance, max $50,000) | No |
The key difference: the employee deferral
A Solo 401(k) lets you contribute as both employee and employer. A SEP IRA only has the employer side. At lower income levels this matters a lot: a side-hustler earning $50,000 of net self-employment income can put almost the entire amount into a Solo 401(k) ($24,500 deferral + ~$9,000 employer), but only about $9,000 into a SEP IRA.
When the SEP IRA wins
- You want zero paperwork. SEPs have no annual filing requirement; Solo 401(k)s need Form 5500-EZ once assets exceed $250,000.
- You only need an employer-side contribution and value administrative simplicity.
- You may hire employees soon and prefer the simpler SEP rules.
When the Solo 401(k) wins
- You earn less than ~$290,000 in net SE income. The employee deferral lets you save dramatically more.
- You want a Roth option that actually works at your custodian.
- You may want to do mega backdoor Roth contributions (some Solo 401(k) plan documents allow after-tax + in-plan conversion).
- You want the ability to take a loan from your own plan.
- You want to roll an old pre-tax IRA into the plan to clear the way for a backdoor Roth IRA.
S-Corp vs. sole prop math
An S-Corp owner's employer contribution is 25% of W-2 wages. A sole prop's is approximately 20% of net self-employment income (net earnings minus half of SE tax, then 20%). For the same gross profit, the S-Corp structure usually allows slightly higher employer contributions, but also forces a "reasonable salary" and triggers payroll taxes.
Can you have both?
Yes, but only if they cover different businesses. Within a single business, the IRS treats SEP and Solo 401(k) as mutually exclusive: pick one. Most self-employed people who already opened a SEP should consider converting to a Solo 401(k) for the bigger limits and the Roth option.
Sources
- IRS Notice 2025-67, 2026 inflation-adjusted retirement plan limits: irs.gov/pub/irs-drop/n-25-67.pdf
- Internal Revenue Code §415(c), annual additions limit (Cornell LII): law.cornell.edu/uscode/text/26/415
- IRS Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans): irs.gov/forms-pubs/about-publication-560
- IRS, "One-Participant 401(k) Plans": irs.gov/retirement-plans/one-participant-401k-plans
RetirementCheck101 handles both vehicles, including the sole-prop vs. S-Corp math and the SE tax deduction. Explore the free educational tool to see which fits your situation.