SEP-IRA vs Solo 401(k): How the Two Self-Employed Retirement Plans Differ (2026)

IRS-governed — opened at banks/brokerages

SEP-IRA

Simplest high-limit plan for the self-employed — employer contributions only, minimal paperwork.

• 2026 max contribution: Up to $72,000
• Who contributes: Employer only
• Catch-up (50+): None
• Roth option: Limited

Pros

• Highest simplicity — easy to open, no annual Form 5500 filing at low asset levels
• Same $72,000 ceiling as a Solo 401(k) for high earners (IRS Notice 2025-67)
• Flexible — you can vary or skip contributions year to year
• Works even if you have eligible employees (though you must fund theirs proportionally)

Read IRS Publication 560 →

IRS-governed — opened at brokerages/plan providers

Solo 401(k)

Reaches the max at lower income via an employee deferral, plus Roth and catch-up options.

• 2026 employee deferral: $24,500
• 2026 combined max: Up to $72,000
• Catch-up (50+): $8,000
• Roth option: Yes

Pros

• Employee deferral ($24,500) lets moderate earners reach the cap that a SEP-IRA can't at the same income
• Age-50 catch-up of $8,000 ($11,250 at ages 60-63 in 2026)
• Roth (after-tax) contributions widely available
• Loans are permitted from many Solo 401(k) plans

Read IRS Publication 560 →

Contribution limits and structure. A SEP-IRA allows only employer contributions — up to 25% of net self-employment income or $69,000 in 2024 (whichever is less). A Solo 401(k) allows both employee deferrals ($23,000 in 2024, plus $7,500 catch-up if 50+) and employer profit-sharing contributions, often enabling higher total contributions at lower income levels because the employee deferral isn't limited to a percentage of income. Source: IRS Publication 560 at irs.gov.

At lower income levels (under ~$100,000 net self-employment income), the Solo 401(k) typically allows higher contributions because the employee deferral isn't income-percentage-limited. At higher incomes, both approach the same annual cap ($69,000 in 2024). The Solo 401(k) also allows Roth contributions with some providers, and loans against the balance — features SEP-IRAs don't offer. Source: IRS.gov and IRS Publication 560.

You can have both accounts, but you cannot double-contribute beyond the annual addition limit ($69,000 in 2024). The IRS aggregates contributions across plans for the same employer. In practice, most self-employed individuals choose one or the other. If you have employees, the Solo 401(k) is not available (it's restricted to sole proprietors/partnerships with no eligible employees other than a spouse). This is informational — consult a qualified tax advisor for your situation. Source: IRS Publication 560 at irs.gov.

SEP-IRA is simpler: no annual IRS reporting is required until assets exceed $250,000 (at which point Form 5500-SF is required), and setup is straightforward at any major custodian. Solo 401(k) plans require an IRS-approved plan document at setup, and Form 5500-EZ is required annually once assets exceed $250,000. For pure simplicity, SEP-IRA wins; for maximum contribution flexibility, Solo 401(k) is the better structure. Source: IRS.gov.