Federal rules for readers across the U.S.
SEP IRA vs Solo 401(k): 2026 Limits Compared
By Christian Brinkley. Reviewed October 8, 2026.
Educational information only, not personalized tax, legal, or investment advice. Christian is a licensed insurance agent (NC Life & Health), not a CPA or registered investment adviser. Discuss your own situation with a qualified professional.
The one structural difference
A SEP IRA has a single contribution lane: employer money only, capped at 25% of compensation, which works out to about 20% of net self-employment earnings after the deductible half of self-employment tax. A solo 401(k) has the same employer lane plus an employee lane: the $24,500 elective deferral for 2026. That extra lane is why the solo 401(k) shelters more at the same income.
2026 limits, line by line
Employee deferral: $24,500, solo 401(k) only, and no deferral exists for a SEP. Age-50 catch-up: $8,000, solo 401(k) only. Super catch-up for ages 60 through 63: $11,250, solo 401(k) only. Total annual additions: $72,000 under both plans. Compensation that can count: up to $360,000. A SEP IRA has no deferral and no catch-up at any age.
Where the solo 401(k) pulls ahead
Take a freelancer with about $100,000 of net self-employment income. A SEP IRA allows roughly the employer share, about $18,500. A solo 401(k) allows the same employer share plus the full $24,500 deferral, about $43,000 combined. The gap closes only at very high incomes, where 25% of compensation reaches the $72,000 cap on its own.
The tradeoffs that come with the solo 401(k)
A solo 401(k) can allow loans up to 50% of the balance or $50,000, and it supports Roth contributions. But it is only for businesses with no employees other than the owner and a spouse; hire someone and the plan has to change. If plan assets pass $250,000, you file Form 5500-EZ each year. A SEP IRA is simpler to open and run, which is its main selling point.
Deadlines and the fine print
A SEP IRA can be set up and funded as late as your tax return due date, including extensions. A solo 401(k) involves more setup, usually needs an employer identification number, and the employee deferral election has its own timing rules. Because self-employment math and deadlines bite, run your exact number through IRS Publication 560 or a qualified tax pro before you file.
| Feature | How they compare |
|---|---|
| Employee deferral | None with a SEP IRA; $24,500 with a solo 401(k) |
| Catch-up at 50+ | None with a SEP IRA; $8,000 with a solo 401(k) |
| Catch-up at 60 to 63 | None with a SEP IRA; $11,250 with a solo 401(k) |
| Total additions, 2026 | $72,000 under both plans |
| Loans | Not allowed from a SEP IRA; allowed if the solo 401(k) plan permits |
| Employees | SEP can cover employees; solo 401(k) is owner and spouse only |
Your records checklist
- Confirm your business has no employees other than you and your spouse before choosing a solo 401(k).
- Use IRS Publication 560 to compute your real employer-share percentage.
- Make the employee deferral election on time if you use a solo 401(k).
- Do not count on catching up with a SEP IRA after 50; it has no catch-up lane.
- File Form 5500-EZ once a solo 401(k) passes $250,000 in assets.
Common questions
- Can I have a SEP IRA and a solo 401(k) at the same time?
- Yes, but the totals still share the $72,000 annual additions limit per employer, and the employer pieces share the 25% compensation limit. Talk to a tax pro before splitting contributions.
- Can I contribute if my W-2 job already maxes my 401(k)?
- Your $24,500 employee deferral limit is per person across all 401(k) plans, so a maxed-out W-2 deferral leaves only the employer lane open for your solo plan.
- Which is easier to open?
- A SEP IRA. It takes minutes at most brokerages with almost no paperwork. A solo 401(k) needs a plan document and usually an EIN, plus ongoing attention once assets grow.
Sources and current instructions
Check the tax year and any later updates before acting. These are the primary sources used for this guide.