Self-Employed 401(k): Solo 401(k) vs SEP IRA

If you freelance, consult, run a single-member business, or earn meaningful side income, you are not limited to a standard IRA. Self-employed savers often use Solo 401(k)s or SEP-IRAs to unlock much higher contribution potential.

The right choice depends on your income, whether you have employees, whether you want Roth contributions, and how much administrative complexity you are willing to tolerate.

A Solo 401(k) lets you contribute as both employee and employer. In 2026, that means up to $24,500 of employee deferrals, plus employer contributions, up to the overall annual additions limit of $72,000 before catch-up amounts are counted.

That structure often makes the Solo 401(k) the most powerful option for self-employed people with no employees. It can also offer Roth contributions, which SEP-IRAs do not.

A SEP-IRA is easier to set up and maintain than a Solo 401(k). You contribute only as the employer, up to a percentage of net self-employment income, with a higher dollar cap than a Traditional IRA.

If you have employees, you must generally contribute the same percentage for them. That can make a SEP-IRA less attractive if you want to maximize your own savings without employer obligations. It is often best when simplicity matters more than squeezing out every last contribution advantage.

A SIMPLE IRA can also fit small businesses that want lower administrative complexity and do not need the highest contribution limits. It is usually less powerful than a Solo 401(k) for a one-person business, but it can be easier to understand and maintain.

If your main goal is maximum savings flexibility, the Solo 401(k) usually wins. If your goal is low friction, a SIMPLE IRA or SEP-IRA may be worth considering.

If you also have a workplace 401(k), remember that your employee deferral limit is shared across 401(k) plans. You cannot make a full employee deferral to both a day-job 401(k) and a Solo 401(k) in the same year.

Also think ahead about plan setup deadlines and whether you may add employees in the future. A Solo 401(k) becomes more complicated once you are no longer truly solo.