Self-Employment Guide
Solo 401(k) vs SEP IRA: which is better?
Both are retirement accounts for the self-employed. The Solo 401(k) lets you contribute as both employee and employer; the SEP IRA only as employer. At most income levels, the Solo 401(k) shelters substantially more. 2026 limits from IRS Notice 2025-67.
2026 contribution limits by net SE income
Net SE income = gross minus half of SE tax. Solo 401(k) employee + employer. SEP IRA employer only (25% of net).
| Net SE income | Solo 401(k) max | SEP IRA max | Solo 401(k) advantage |
|---|---|---|---|
| $50,000 | $37,000 | $12,500 | +$24,500 |
| $100,000 | $49,500 | $25,000 | +$24,500 |
| $200,000 | $72,000 | $50,000 | +$22,000 |
| $300,000+ | $72,000 | $72,000 | $0 (both capped) |
The Solo 401(k) advantage is exactly the employee deferral ($24,500 in 2026). They converge only above ~$288,000 net SE income where the SEP IRA hits the $72,000 cap.
Other differences
- Roth option: Solo 401(k) can accept Roth employee deferrals (after-tax in, tax-free growth). SEP IRA is pre-tax only.
- Loans: Solo 401(k) allows loans against the balance (up to $50,000). SEP IRA does not.
- Complexity: SEP IRA is simpler to open (one form). Solo 401(k) requires more paperwork and an annual Form 5500-EZ if the balance exceeds $250,000.
- Employees: Solo 401(k) is for solo operators (plus a spouse). If you hire W-2 employees, you need a regular 401(k) or SEP for all eligible staff.
For UK self-employed (SIPP, up to £60,000) and Canadian self-employed (RRSP, 18% up to $33,810), see the tax-sheltered vehicles guide.
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