Solo 401(k) vs SEP-IRA: which saves you more?
For most owners with no employees, a solo 401(k) lets you save more, because you contribute as both employee and employer. A SEP-IRA is simpler but employer-only. Both reach $72,000 for 2026. Once you've got employees, a solo 401(k) is out, and a SEP has to cover them too.
Updated November 2026 · By Pankil Kumar, Managing Partner
Quick facts
- Overall limit. $72,000 for 2026, before catch-ups
- Solo 401(k) deferral. $24,500 employee deferral for 2026
- Employees?. Solo 401(k) is for owners and spouses only
How do they compare?
| Feature | Solo 401(k) | SEP-IRA |
|---|---|---|
| 2026 maximum | $72,000, plus catch-up | $72,000 |
| Employee deferral | $24,500 | None |
| Employer contribution | Up to about 20% of net self-employment earnings | Same |
| Catch-up at 50+ | $8,000, or $11,250 at 60 to 63 | None |
| Roth option | Often | Possible under newer rules, if the provider offers it |
| Loans | Often | No |
| Can have employees | No, spouse only | Yes, must cover eligible staff |
| Paperwork | More, with Form 5500-EZ above $250,000 | Very little |
Which saves more?
At modest incomes, the solo 401(k) wins clearly, because the employee part isn't tied to a percentage of profit.
| Net self-employment earnings | SEP-IRA, about | Solo 401(k), about |
|---|---|---|
| $50,000 | $9,290 | $33,790 |
| $100,000 | $18,590 | $43,090 |
| $200,000 | $37,180 | $61,680 |
These figures assume someone under 50 and a sole proprietor, and they're simplified. At very high incomes, both hit the $72,000 ceiling.
Which is the better fit?
Pick a solo 401(k) if you've got no staff and want to save as much as possible, make Roth contributions, or borrow from the plan. Pick a SEP-IRA if you want it simple, your contributions will be modest, or you may hire soon. If you've got employees, also look at a SIMPLE IRA, with a $17,000 employee limit for 2026, or a regular 401(k).
What are the deadlines?
A SEP-IRA can usually be opened and funded up to your tax filing deadline, including extensions. Solo 401(k) rules are tighter. Employer contributions can wait until the filing deadline, while employee deferrals have their own election timing. So try to set it up by year end. Check with your provider.
What does it do for your taxes?
Pre-tax contributions cut income tax, but not self-employment tax. For an S-Corp owner, contributions are based on your W-2 salary, not your distributions. That's one trade-off of a low salary. They may also reduce your QBI deduction a little. Our planning service can run both side by side.
Sources
- IRS: 401(k) limit increases to $24,500 for 2026
- IRS: One-participant 401(k) plans
- IRS Publication 560: Retirement plans for small business
General information, not tax advice for your situation.
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See our tax planning and CFO serviceCan I have both a solo 401(k) and a SEP-IRA?
It's possible but rarely useful, and it brings extra limits. One plan is usually enough.
Can my spouse join my solo 401(k)?
Yes, if your spouse works in the business and earns income from it. That can double what you save as a household.
Do I need a solo 401(k) if I also have a day job 401(k)?
You can have both, but the $24,500 employee limit is shared across plans.
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