Side-by-Side
Full Feature Comparison
Same dollar ceiling, very different mechanics.
| Feature | SEP IRA | Solo 401(k) |
|---|---|---|
2026 Annual Limit Lesser of % of comp or dollar cap |
$72,000 | $72,000 |
Contribution Source |
Employer only | Employee deferral + employer profit-sharing |
Employee Elective Deferral In addition to employer contribution |
No | Up to $24,500 (2026) |
Catch-Up (Age 50+) |
No standard catch-up | +$8,000 |
Super Catch-Up (Age 60–63) |
+$11,250 (SECURE 2.0) | +$11,250 (SECURE 2.0) |
Employer Rate (W-2) |
Up to 25% of W-2 comp | Up to 25% of W-2 comp |
Effective Rate (Self-Employed) After SE tax deduction |
~20% of net SE income | ~20% of net SE income (profit-sharing portion) |
Roth Option |
Yes — Roth SEP IRA (SECURE 2.0) | Yes — Roth Solo 401(k) (if plan allows) |
Loan Provision |
No | Yes — up to 50% / $50k |
Employees (Non-Spouse) Allowed |
Yes — must cover all eligible employees | No — only owner and spouse |
Setup Complexity |
Very simple ✓ | Moderate — need plan document |
Annual Reporting |
None ✓ | Form 5500-EZ if assets > $250k |
Contribution Deadline |
Tax filing deadline incl. extensions | Employee deferral: Dec 31 Employer: tax filing deadline |
RMD Required |
Age 73 | Age 73 (Trad.); Roth Solo 401k: none |
Compensation Limit |
$360,000 | $360,000 |
Example Comparison
How Much Can You Contribute at $100k Net Income?
Assuming $100,000 net self-employment income (after the SE tax deduction).
🧾 SEP IRA at $100k
💼 Solo 401(k) at $100k
At $100k income, the Solo 401(k) allows 2.2× more in contributions. The gap narrows as income rises (at high incomes, both can reach the $72,000 cap).
Strengths & Weaknesses
Pros & Cons
- Extremely easy to open and administer — no plan document needed
- No annual IRS filing requirements
- Contribution deadline can be extended with your tax return
- Can have employees (must contribute equally for all eligible employees)
- Roth SEP IRA option available since SECURE 2.0
- Wide brokerage support
- Only employer contributions — no separate employee elective deferrals
- At lower incomes, contribution room is much smaller than Solo 401(k)
- No catch-up for ages 50–59 (only SECURE 2.0 super catch-up at 60–63)
- No loan provision
- Must cover all eligible employees at the same percentage (expensive if you have staff)
- Higher contribution limit at lower income levels (employee deferral boosts total)
- Both traditional and Roth contribution options
- Loan provision (up to 50% of balance / $50k)
- Standard 50+ catch-up ($8,000) plus SECURE 2.0 super catch-up at 60–63
- Spouse can participate, doubling household contributions
- Cannot have non-spouse full-time employees
- More paperwork — plan document required at setup
- Form 5500-EZ required once assets exceed $250k
- Employee deferral election must be made by December 31 (not extendable)
- Fewer brokerages offer Solo 401(k) accounts
Decision Guide
Which Should You Choose?
- You have employees (other than your spouse) you need to cover
- You want maximum simplicity — open in minutes, no ongoing paperwork
- You're in a high income bracket where the 25%/20% rate alone reaches the cap
- You missed December 31 and still want to contribute for last year
- You're a small business owner who values flexibility in contribution amounts year-to-year
- You have no non-spouse employees and want to maximize retirement savings
- Your income is moderate (under $200k) where the employee deferral makes a big difference
- You want Roth contribution options
- You may need a loan from your retirement account
- Your spouse also works in the business — you can both contribute
- You're 50+ and want catch-up contributions
FAQ
Common Questions
The Solo 401(k) has two "buckets": an employee elective deferral (up to $24,500 in 2026) and an employer profit-sharing contribution (up to 25% of W-2 / ~20% of net SE income). The SEP IRA only has the employer bucket. At $60k income, the Solo 401(k) lets you contribute $24,500 employee + ~$12,000 employer = ~$36,500 vs the SEP's ~$12,000. The gap disappears as income rises above ~$150k.
Yes, but your total employee deferral across all 401(k) plans is capped at $24,500 in 2026. If you contribute $24,500 to your employer's 401(k), you've used up your employee deferral — you can still make the employer profit-sharing contribution to your Solo 401(k) from your self-employment income. The annual additions limit applies separately per employer.
You can make SEP IRA contributions up to the tax filing deadline, including extensions. For sole proprietors, that means October 15 (with an extension). This is one of the most flexible deadlines in retirement account law — you can fund a prior-year SEP IRA well into the following year.
Yes — SECURE 2.0 (effective 2023) allows Roth SEP IRA and Roth SIMPLE IRA contributions for the first time. Solo 401(k) plans could already offer a Roth feature if the plan document included it. Check whether your financial institution supports these options, as rollout has been gradual.
Yes. If your spouse works in your business, they can participate in the Solo 401(k) as an employee. This can effectively double household contributions. The spouse's contribution limits work the same way: up to $24,500 employee deferral plus the employer match from their compensation.