Compare Solo 401(k) vs SEP IRA contribution limits side by side. Find out which retirement plan lets you save more for retirement based on your self-employment income and age.
| Item | Amount |
|---|---|
| Net Profit from Self-Employment | $0 |
| Your Age | — |
| Preferred Plan Type | — |
| Max Solo 401(k) Contribution | $0 |
| Max SEP IRA Contribution | $0 |
| Recommended Plan | — |
| Estimated Tax Savings (32% bracket) | $0 |
Solo 401(k) plans allow you to contribute as both employee (up to $24,500 deferral in 2026) and employer (up to 25% of compensation) for a combined total of up to $72,000. SEP IRAs are simpler — you contribute as employer only, up to 25% of compensation (capped at $72,000).
Both plans reduce your taxable income dollar-for-dollar. The tax savings shown assumes a 32% marginal federal tax rate — your actual savings depend on your tax bracket.
Answers to common questions about Solo 401(k) vs SEP IRA for self-employed individuals
If you are self-employed, choosing the right retirement plan is one of the most important financial decisions you can make. The two most popular options — the Solo 401(k) and the SEP IRA — both offer powerful tax advantages, but they work differently. A Solo 401(k) lets you contribute in two roles: as an employee (making salary deferrals up to $24,500 in 2026) and as an employer (making profit-sharing contributions up to 25% of your compensation). A SEP IRA is employer-funded only, with contributions of up to 25% of your adjusted net profit. For 2026, both plans share the same overall cap of $72,000, but the Solo 401(k) often allows you to reach that cap with less income.
The right plan depends on your income, age, and business structure. If your net profit is under $100,000, a Solo 401(k) typically wins because the employee deferral gives you a head start. For example, with $60,000 in profit, you can defer $24,500 as an employee plus about $12,000 as an employer — totaling over $36,000. A SEP IRA on the same income would only allow about $14,000. If you are age 50 or older, the Solo 401(k) is even more attractive thanks to $8,000 catch-up contributions. If you have employees, SEP IRAs require equal contributions for all eligible staff, which can be expensive — a Solo 401(k) may still work if you exclude employees who work under 1,000 hours.
Both Solo 401(k) and SEP IRA contributions are tax-deductible, reducing your adjusted gross income dollar-for-dollar. If you contribute $30,000 to a Solo 401(k) and you are in the 32% federal tax bracket, you save approximately $9,600 in federal income tax. On top of that, contributions reduce your self-employment tax liability (since retirement plan contributions are deducted when calculating net earnings from self-employment). Over time, the combination of tax deferral and compound growth makes self-employed retirement plans one of the most powerful wealth-building tools available.