What is the main advantage of a Solo 401(k) over a SEP-IRA?

The key advantage is the employee deferral component. A Solo 401(k) lets you contribute $23,500 in employee deferrals before the employer profit-sharing kicks in. A SEP-IRA has no employee deferral — it only allows employer contributions of up to 25% of compensation. At income levels below about $280,000, the employee deferral in a Solo 401(k) allows significantly larger total contributions. Above that level, both plans hit the same $70,000 annual additions ceiling.

At what income level does Solo 401(k) stop being better?

When your net SE compensation × 25% equals the §415 annual additions limit ($70,000), a SEP-IRA hits its own ceiling — and so does the employer portion of a Solo 401(k). This crossover occurs around $280,000 in net SE compensation. Above that point, both plans cap at $70,000 in employer/profit-sharing contributions. The Solo 401(k) still wins because of the employee deferral on top, but the relative gap narrows. At very high income both plans max out at $70,000 (before catch-up), so the Solo 401(k) still wins by exactly the deferral amount ($23,500 or $70,000 vs $70,000).

Can I have both a Solo 401(k) and a SEP-IRA?

Technically yes, but there is no benefit — the $70,000 §415 annual additions limit applies per employer, not per account. Contributions to both plans from the same self-employment activity are aggregated for the limit. You cannot double up. Most practitioners choose one plan and contribute the maximum allowed.

What are the administrative differences between the two plans?

SEP-IRAs are simpler — you open an IRA at any brokerage and contribute up to the tax filing deadline (plus extensions). No IRS filings required until your plan assets exceed $250,000 (then Form 5500-EZ is required). Solo 401(k)s require you to adopt a plan document and open the plan by December 31 of the tax year (not the filing deadline). Once plan assets exceed $250,000, annual Form 5500-EZ filing is required. Loans and Roth contributions are available in a Solo 401(k) but not a SEP-IRA.

Can my spouse also contribute if they work in the business?

Yes. If your spouse performs services for your business, they can make employee contributions to the Solo 401(k) as well. This is a significant advantage — a spousal couple both working in the business could each contribute up to $70,000, for a combined $140,000 in tax-deferred savings. The SEP-IRA allows contributions for employees, but the SEP contribution rate must be the same for all eligible employees, including any non-owner employees.

Can I still contribute to a SEP-IRA if I have a day job with a 401(k)?

Yes, with limits. If you have both W-2 income from an employer and self-employment income, you can contribute to both your employer plan and a SEP-IRA (or Solo 401(k) for the SE income). However, the §402(g) employee deferral limit ($23,500) applies across all plans combined — you cannot defer $23,500 to your employer 401(k) and another $23,500 to a Solo 401(k). The employer contribution portions are separate.

Which plan is better if I have other employees?

If you have W-2 employees (other than your spouse), a Solo 401(k) is no longer available — it is strictly for business owners with no employees other than a spouse. You would need a SEP-IRA (which requires pro-rata contributions for all eligible employees at the same rate) or a traditional 401(k) plan with a third-party administrator. If you are considering hiring, factor in the compliance cost of a traditional 401(k) vs the simplicity of a SEP at 25% of each employee's compensation.

What is the deadline to contribute?

SEP-IRA contributions can be made up to the tax return due date including extensions — typically October 15 for individuals. Solo 401(k) employee deferrals must be made by December 31 (the plan year end), but employer profit-sharing contributions can be made up to the tax filing deadline including extensions. This means a SEP-IRA offers more flexibility if you set it up late; a Solo 401(k) requires action by year-end for the deferral portion.

Retirement & Investing

Solo 401(k) vs SEP-IRA Calculator (2026)

Compare how much you can contribute to a Solo 401(k) vs SEP-IRA based on your self-employment income, age, and business structure — 2026 limits.

By The FinCalc TeamUpdated May 28, 2026

Self-employed people and small business owners can shelter far more income from taxes than employees — but only if they choose the right plan. A Solo 401(k) allows both an employee deferral and an employer profit-sharing contribution, letting a sole proprietor contribute up to $70,000 in 2026 plus a catch-up if over 50. A SEP-IRA only allows the employer portion — up to 25% of net compensation, capped at the same $70,000. At moderate income levels, the Solo 401(k) wins by a wide margin. This calculator shows the exact difference for your income and age.

How Solo 401(k) and SEP-IRA Contributions Work

The Core Formula Difference

Both plans share the same §415 annual additions limit ($70,000 in 2026), but they build up to that limit differently:

SEP-IRA: Employer only. Up to 25% of net SE compensation (after deducting half of SE tax). The IRS formula effectively limits this to about 20% of net SE profit.

Solo 401(k): Two-part structure:

Employee deferral up to $23,500 (or 100% of net income, whichever is less)
Employer profit-sharing up to 25% of net SE compensation

The employee deferral is the game-changer. A self-employed person with $80,000 in net income can contribute the full $23,500 employee deferral before the 25% employer formula even kicks in. A SEP-IRA at the same income only allows ~$14,000 (25% × ~$56K net comp).

2026 comparison at selected income levels:

| Net SE Income | Solo 401(k) | SEP-IRA | Solo Advantage | |--------------|-------------|---------|---------------| | $50,000 | $30,729 | $9,090 | $21,639 | | $100,000 | $46,350 | $18,555 | $27,795 | | $150,000 | $57,325 | $27,835 | $29,490 | | $200,000 | $65,200 | $37,115 | $28,085 | | $300,000 | $70,000 | $55,675 | $14,325 | | $400,000+ | $70,000 | $70,000 | $0* |

*At very high income, SEP-IRA hits the same $70,000 cap — Solo 401(k) wins by catch-up only if age 50+.

Catch-Up Contributions

Solo 401(k) allows:

Age 50–59 and 64+: $7,500 standard catch-up
Age 60–63: $11,250 super catch-up (SECURE 2.0)

SEP-IRA: No catch-up allowed at any age.

A 62-year-old at $200,000 income can contribute $70,000 + $11,250 = $81,250 to a Solo 401(k) vs $70,000 to a SEP-IRA.

When to Use This Calculator

When you are deciding which retirement plan to set up for your self-employed or small business income. Run this calculator before December 31 — Solo 401(k) plans must be opened by year-end, while SEP-IRAs can be established at tax filing time.

When evaluating an S-Corp election. Paying yourself a W-2 salary from an S-Corp vs taking all distributions as Schedule C income affects how much you can contribute. A modest W-2 salary lets you maximize the employee deferral while minimizing payroll taxes.

When comparing plans as your income grows. At low income, the Solo 401(k) advantage is largest. As income rises toward $280,000+, the two plans converge. This calculator shows the exact crossover for your situation.

Related Calculators

Mandatory Roth Catch-Up Calculator (2026) — if your W-2 wages exceed $150K, your Solo 401(k) catch-up contributions must go to Roth, not traditional
QLAC RMD Deferral Calculator (2026) — years of maxing a Solo 401(k) builds the large balance that later drives RMDs; plan the distribution phase
Super Catch-Up Window Calculator (2026) — age 60-63 is the window to maximize retirement savings before Medicare enrollment

Understanding the Inputs

Income Type: How your business pays you affects which formula applies. Schedule C sole proprietors and single-member LLC owners use net self-employment income (profit before the SE tax deduction). S-Corp and C-Corp owners who pay themselves a W-2 salary use that W-2 amount for the employee deferral, while the employer profit-sharing is based on the W-2 wages. If you have both types of income, select "Both" — contributions are calculated separately and combined, subject to the overall §415 limit.
Net Self-Employment Income: Your Schedule C net profit for the year — gross revenue minus business expenses, before the deduction for half of SE tax. This is the number from the bottom of Schedule C (or Schedule F for farmers). Do not reduce it by your Solo 401(k) contribution — that deduction happens on Form 1040, not here.
W-2 Wages from Your Business: If you are an S-Corp or C-Corp owner, this is the reasonable compensation salary you pay yourself through payroll. Both the employee deferral and the employer profit-sharing are based on W-2 wages for incorporated owners. The IRS requires S-Corp shareholders who perform services to pay themselves a reasonable W-2 salary before taking distributions.
Your Age: Age as of December 31. Age 50+ qualifies for a $7,500 catch-up contribution in the Solo 401(k) (SEP-IRA has no catch-up). Ages 60–63 qualify for the SECURE 2.0 super catch-up of $11,250 instead of $7,500. The catch-up reverts to the standard amount at age 64. SEP-IRA has no catch-up at any age.
Include catch-up contributions: Whether to include the age-based catch-up contribution in the Solo 401(k) total. The catch-up is in addition to the base $70,000 annual additions limit — a 62-year-old can contribute $70,000 + $11,250 = $81,250 to a Solo 401(k) in 2026.

Frequently Asked Questions

Related Calculators

Mandatory Roth Catch-Up Contribution Calculator (2026)

Retirement & Investing

Super Catch-Up Retirement Window Calculator (2026)

Retirement & Investing

QLAC RMD Deferral Calculator (2026)

Retirement & Investing

The FinCalc Team

Personal Finance Experts

The FinCalc team is a group of personal finance writers, analysts, and engineers dedicated to building accurate, transparent financial calculators. Every formula is verified against industry standards and explained in plain language.

Last reviewed and updated: May 28, 2026