Solo 401(k) vs SEP IRA when you are self-employed

Both let self-employed people shelter income, but they work differently. A SEP IRA is employer-only contributions — simple to open, often 20% of net earnings up to the annual cap. A Solo 401(k) adds an employee deferral bucket ($24,500 in 2026 for under-50) plus employer profit-sharing, so totals can be higher on the same income.

When SEP wins

Minimal paperwork, one contribution before your filing deadline (including extensions), and no Form 5500-EZ for many small plans. Good when you want to dump a percentage of profit once a year.

When Solo 401(k) wins

You want to max deferrals early in the year, or your net income is high enough that employee + employer limits beat SEP alone. Compare numbers in our Solo 401(k) and SEP IRA calculators. Catch-up contributions at 50+ (and super catch-up at 60–63 under current law) apply to the 401(k) side.

Employees change the picture

SEP requires the same percentage for every eligible employee. Solo 401(k) is for businesses with no employees other than a spouse in some setups. Hire help and revisit plan design with a professional.