SEP IRA vs. Solo 401(k) for the Self-Employed
If you're self-employed — a freelancer, contractor, or one-person business — you don't get an employer 401(k), but you get something arguably better: access to retirement plans with very high contribution ceilings. The two leading options are the SEP IRA and the Solo 401(k). The IRS covers both on its retirement plans for self-employed people page, and the 2026 dollar limits come from Notice 2025-67.
The 2026 ceilings
Both plans share the same overall cap — the 415(c) defined-contribution limit of $72,000 for 2026 — but they reach it differently.
| SEP IRA | Solo 401(k) | |
|---|---|---|
| You contribute as … | Employer only | Employee and employer |
| Employer share | Up to 25% of compensation | Up to 25% of compensation |
| Employee deferral | None | Up to $24,500 (2026) |
| Catch-up (50+) | No | Yes (+$8,000) |
| Overall 2026 cap | $72,000 | $72,000 (+catch-up) |
| Roth option | Generally no | Often yes |
Why the Solo 401(k) often wins at moderate incomes
This is the crucial difference. A SEP IRA only allows the employer contribution — up to 25% of your compensation. A Solo 401(k) lets you add a separate employee salary deferral (up to $24,500 in 2026) on top of that 25%. So at a moderate income, the Solo 401(k) usually lets you contribute substantially more.
Example: with $80,000 of net self-employment income, the 25% employer piece is roughly the same for both plans, but the Solo 401(k) lets you also stash up to $24,500 as an employee deferral — potentially tens of thousands more than the SEP allows at that income. At very high incomes, both plans converge at the $72,000 ceiling and the gap closes.
The trade-offs
- SEP IRA: dead simple to open and maintain, minimal paperwork, easy to fund variable amounts year to year. Great if you want maximum simplicity.
- Solo 401(k): more setup and, once assets grow past a threshold, an annual IRS filing — but higher contributions at moderate incomes, a Roth option, and (in many plans) the ability to take a loan. The catch: it's only for businesses with no employees other than a spouse.
The same now-vs-later tax logic from Roth vs. traditional applies to the Roth Solo 401(k) option.
The bottom line: Both let the self-employed save up to $72,000 in 2026, but the Solo 401(k) usually allows more at moderate incomes because it adds an employee deferral on top of the 25% employer contribution — and offers a Roth option. The SEP IRA wins on pure simplicity.
This is general education, not personalized tax or financial advice. Self-employment contribution math is nuanced — confirm your numbers with a CPA or licensed advisor before acting.