A Solo 401(k) saves more than a SEP IRA for most self-employed people in 2026 because it allows two contributions: a $24,500 employee deferral plus the same employer contribution a SEP allows. Both plans top out at $72,000 before catch-ups. A Solo 401(k) reaches that cap at about $237,500 of net earnings; a SEP needs about $360,000. The SEP is the simpler plan, and it is the one that works once you have employees.
Use the SEP IRA calculator to get your SEP number, then compare it with the Solo 401(k) figures below.
What is the difference between a Solo 401(k) and a SEP IRA?
A SEP IRA accepts only employer contributions. A Solo 401(k), which the IRS calls a one-participant 401(k), lets you contribute in two roles:
- As the employee: an elective deferral of up to $24,500 for 2026, pretax or Roth, limited to 100% of compensation.
- As the employer: a nonelective contribution of up to 25% of compensation. For a sole proprietor, that is 20% of net earnings after the deduction for half of self-employment tax, per Publication 560.
The employer piece is identical in both plans. The difference is the deferral, and the catch-ups that only deferrals can carry.
What are the 2026 contribution limits?
From the IRS 2026 cost-of-living table and the 2026 limits announcement:
| 2026 limit | Solo 401(k) | SEP IRA |
|---|---|---|
| Employee deferral | $24,500 | None |
| Employer (% of pay) | 25% | 25% |
| Cap before catch-ups | $72,000 | $72,000 |
| Catch-up, 50 to 59 or 64+ | $8,000 | None |
| Catch-up, 60 to 63 | $11,250 | None |
| Max pay counted | $360,000 | $360,000 |
Catch-ups sit outside the $72,000 cap, so the Solo 401(k) ceiling is $80,000 at 50 and $83,250 at ages 60 to 63.
How much can you contribute at $60K, $150K, and $300K?
The table assumes a sole proprietor with no employees, no other retirement plan, and the stated amount of net earnings after the half-SE-tax deduction. If you are starting from Schedule C profit, subtract half of your self-employment tax first; the SEP IRA guide shows that step.
| Net earnings | SEP IRA | Solo, under 50 | Solo, 50 to 59 | Solo, 60 to 63 |
|---|---|---|---|---|
| $60,000 | $12,000 | $36,500 | $44,500 | $47,750 |
| $150,000 | $30,000 | $54,500 | $62,500 | $65,750 |
| $300,000 | $60,000 | $72,000 | $80,000 | $83,250 |
How the $150,000 row works for someone under 50:
| Piece | Amount |
|---|---|
| Employer: 20% × $150,000 | $30,000 |
| Employee deferral | $24,500 |
| Solo 401(k) total | $54,500 |
| SEP IRA total | $30,000 |
At $300,000, the Solo 401(k) math gives $60,000 plus $24,500, or $84,500, so the $72,000 cap binds. At $60,000, the gap is widest in relative terms: the Solo 401(k) allows three times what the SEP does.
The two plans converge only above about $360,000 of net earnings, where both hit $72,000. Even there, a Solo 401(k) still allows the catch-up.
Which plan has better Roth options?
Both can take Roth money now, but the Solo 401(k) gives you more control:
- Solo 401(k): if the plan document offers it, your $24,500 deferral and catch-up can be designated Roth. Some plans also allow Roth employer contributions.
- SEP IRA: SECURE 2.0 section 601 allows SEP contributions to go to a Roth IRA if the employer offers the option. The contribution is taxable in the year it is deposited and is reported on Form 1099-R.
The 2026 rule that forces catch-ups into Roth applies to people whose prior-year FICA wages from the plan sponsor exceeded $150,000, per IRS Notice 2025-67. The test uses W-2 Social Security wages, so it matters most to S corporation owners who pay themselves a salary above that line.
What paperwork does each plan need?
| Task | Solo 401(k) | SEP IRA |
|---|---|---|
| Setup | Provider plan document | Form 5305-SEP or prototype |
| Annual IRS return | Form 5500-EZ above $250,000 | Usually none |
| Employees | Owner + spouse only | Must cover eligible staff |
| Loans | If plan permits | No |
Publication 560 notes that using Form 5305-SEP usually relieves the employer of annual Form 5500 reporting. Put a reminder on your calendar for the year your balance first crosses $250,000.
When do you have to set up each plan for 2026?
The SEP is more forgiving. Per Publication 560:
- SEP IRA: open and fund by the business’s 2026 return due date, including extensions. For a sole proprietor, that is April 15, 2027, or October 15, 2027, with an extension.
- Solo 401(k), employer contribution: the plan can be adopted by the tax-filing due date, including extensions, and the employer contribution deposited by then.
- Solo 401(k), first-year employee deferrals: since 2023, a sole proprietor with no employees can adopt a 401(k) after year-end and still make deferrals for that first year, but only if the plan is adopted by the filing deadline without extensions. For 2026, that is April 15, 2027.
So if you decide in September 2027, after extending, a SEP still works for 2026 and a new Solo 401(k) can take only the employer piece, which is the same amount the SEP allows.
Which plan works with a backdoor Roth?
The Solo 401(k). The backdoor Roth pro-rata calculation on Form 8606 combines your traditional, SEP, and SIMPLE IRA balances at year-end. A SEP IRA balance makes part of every conversion taxable. A Solo 401(k) balance stays outside the calculation.
A Solo 401(k) can also clean up an existing problem. If the plan accepts roll-ins, you can move pretax money from a traditional or SEP IRA into it, leaving your IRA balance at zero before you convert. Only pretax dollars can roll into the plan; after-tax IRA basis stays behind. Confirm the plan document accepts rollovers before you count on this.
Some Solo 401(k) documents also allow after-tax contributions with in-plan Roth conversion, the setup behind a mega backdoor Roth. It is a plan-document feature, so ask the provider.
What if you also have a 401(k) at a W-2 job?
The employee deferral limit is per person, not per plan. The IRS one-participant 401(k) page says so directly. If you defer $24,500 at your day job in 2026, your Solo 401(k) can take no employee deferral at all.
The employer contribution is a separate matter. The IRS contribution limits guidance explains that the annual additions limit applies to each plan separately when the employers are unrelated. Your side business can still contribute 20% of its net earnings.
Example: you max out the $24,500 deferral at your employer and earn $60,000 of net side income after the half-SE-tax deduction.
| Side-business plan | Deferral | Employer | Total |
|---|---|---|---|
| SEP IRA | None | $12,000 | $12,000 |
| Solo 401(k) | $0 | $12,000 | $12,000 |
The contribution is the same. The Solo 401(k) still wins if you want backdoor Roth contributions, because the SEP IRA balance would count in the pro-rata calculation. If you defer less at the day job, the unused part of the $24,500 can go into the Solo 401(k).
How does the choice change for S corporation owners?
Both plans base the employer contribution on your W-2 wages from the corporation, at a full 25% with no self-employment adjustment. Profit distributions don’t count. At a $100,000 salary:
| Plan | Deferral | Employer (25%) | Total |
|---|---|---|---|
| SEP IRA | None | $25,000 | $25,000 |
| Solo 401(k) | $24,500 | $25,000 | $49,500 |
For an S corporation owner who wants to save more than 25% of salary, the deferral is the only lever short of raising pay, which also raises payroll tax.
Which should you choose?
- Choose a Solo 401(k) if you have no employees other than a spouse, your net earnings are under about $360,000, you are 50 or older, or you do a backdoor Roth.
- Choose a SEP IRA if you have or expect eligible employees, if the unextended deadline for last year has passed and you have no plan yet (the employer piece is the same either way), or if the employer piece alone covers what you want to save and you want the least paperwork.
Run the numbers in the SEP IRA calculator first. For owners deciding among salary, entity type, and plan design, the business owners page explains how Nino works through it. Nino’s Advisor plans include a CPA and CFP with federal and state filing, and Premier ($12,000 a year) adds business and personal returns together.