Solo 401(k) vs SEP-IRA: Self-Employed Retirement Account Comparison (2026)

Quick Answer

For self-employed individuals with no employees, the Solo 401(k) almost always allows higher contributions than a SEP-IRA at the same income level. In 2026, a self-employed person earning $100,000 net can contribute up to ~$25,700 to a Solo 401(k) but only ~$18,587 to a SEP-IRA, because the Solo 401(k) includes an employee deferral of up to $23,500. The Solo 401(k) also offers a Roth option; the SEP-IRA does not.

Freelancers, consultants, sole proprietors, and single-member LLC owners have two primary retirement account options: the Solo 401(k) (also called Individual 401(k) or Self-Employed 401(k)) and the SEP-IRA (Simplified Employee Pension). Both offer high contribution limits far exceeding the standard IRA, and both have a $70,000 total annual limit (2026). The key structural difference: the Solo 401(k) allows both an employee salary deferral (up to $23,500) and an employer profit-sharing contribution (25% of net self-employment income), while the SEP-IRA allows only the employer portion (up to 25%). This makes the Solo 401(k) superior for lower-to-mid income self-employed workers.

Solo 401(k) vs SEP-IRA: Side-by-Side

Feature	Solo 401(k)	SEP-IRA
2026 max contribution	Up to $70,000 (employee + employer)	Up to $70,000 (25% of net SE income)
Employee deferral component	Yes — up to $23,500 ($31,000 age 50+)	No — employer contributions only
Contribution at $80K net income	~$37,160 (deferral + 18.6% profit share)	~$14,860 (18.6% after SE tax adjustment)
Roth option	Yes (if plan document allows Roth)	No
Loan provision	Yes — borrow up to $50,000	No loans
Employee eligibility (if you hire)	Cannot have employees (except spouse)	Must cover eligible employees
Setup complexity	Moderate — IRS Form 5500 if over $250K	Simple — open at any brokerage
Best for	Self-employed with no employees; lower income; want Roth	Self-employed who may hire; simplicity; very high income

2026 max contribution

Solo 401(k)

Up to $70,000 (employee + employer)

SEP-IRA

Up to $70,000 (25% of net SE income)

Employee deferral component

Solo 401(k)

Yes — up to $23,500 ($31,000 age 50+)

SEP-IRA

No — employer contributions only

Contribution at $80K net income

Solo 401(k)

~$37,160 (deferral + 18.6% profit share)

SEP-IRA

~$14,860 (18.6% after SE tax adjustment)

Roth option

Solo 401(k)

Yes (if plan document allows Roth)

SEP-IRA

Loan provision

Solo 401(k)

Yes — borrow up to $50,000

SEP-IRA

No loans

Employee eligibility (if you hire)

Solo 401(k)

Cannot have employees (except spouse)

SEP-IRA

Must cover eligible employees

Setup complexity

Solo 401(k)

Moderate — IRS Form 5500 if over $250K

SEP-IRA

Simple — open at any brokerage

Best for

Solo 401(k)

Self-employed with no employees; lower income; want Roth

SEP-IRA

Self-employed who may hire; simplicity; very high income

Which Should You Choose?

For most self-employed individuals earning under $200,000 net, the Solo 401(k) allows higher contributions due to the employee deferral component. At very high income levels (above ~$160,000), both plans reach the $70,000 maximum and the SEP-IRA's simplicity becomes more attractive. The Solo 401(k)'s Roth option is a compelling advantage for those who expect to be in a higher tax bracket in retirement. The SEP-IRA wins on simplicity — you can open and fund it by the tax filing deadline (including extensions), while Solo 401(k)s must be established by December 31.

Run the Numbers

Solo 401(k) Calculator →SEP-IRA Calculator →

Frequently Asked Questions

Can I have both a Solo 401(k) and a SEP-IRA?+

You cannot meaningfully contribute to both simultaneously — having an active SEP-IRA can complicate Backdoor Roth conversions due to the pro-rata rule. Most advisors recommend choosing one or the other.

What is the Solo 401(k) contribution limit formula for 2026?+

Employee deferral: up to $23,500 ($31,000 age 50+). Employer profit-sharing: up to 20% of net self-employment income (after deducting half of SE tax). Total cannot exceed $70,000 ($77,500 age 50+).

What is the deadline to open a Solo 401(k)?+

A Solo 401(k) must be established by December 31 of the tax year (unlike a SEP-IRA, which can be opened up to the tax filing deadline, including extensions). However, you can contribute until the tax filing deadline.

When must I file Form 5500 for a Solo 401(k)?+

Form 5500-EZ is required once Solo 401(k) assets exceed $250,000. Below that threshold, no annual filing is required, making administration simpler.

Can I roll a SEP-IRA into a Solo 401(k)?+

Yes. You can roll over a SEP-IRA into a Solo 401(k). This is advantageous for those who want to execute Backdoor Roth conversions, because moving pre-tax IRA funds into a 401(k) eliminates the pro-rata rule issue.

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Disclaimer: This comparison is for informational purposes only and does not constitute financial, tax, or legal advice. IRS figures shown are for the 2026 tax year. Tax laws change — verify current limits at IRS.gov. Consult a qualified financial advisor before making retirement, investment, or tax decisions.