# SEP IRA vs Solo 401(k): 2026 Limits Compared

> SEP IRA or solo 401(k)? Compare the 2026 contribution limits, catch-up rules, and deadlines, then see which plan lets a one-person business save more.

Canonical: https://christianbrinkleync.com/guides/sep-ira-vs-solo-401k

## Quick answer

For an owner-only business, a solo 401(k) usually wins because it adds a $24,500 employee deferral for 2026 on top of the employer share. A SEP IRA only allows employer contributions. Both plans cap total additions at $72,000 for 2026.

## 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.

## SEP IRA vs solo 401(k), 2026 rules

| 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 |

## 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.

## Frequently asked 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

- [IRS: One-participant 401(k) plans](https://www.irs.gov/retirement-plans/one-participant-401k-plans)
- [IRS: SEP contribution limits](https://www.irs.gov/retirement-plans/plan-participant-employee/sep-contribution-limits-including-grandfathered-sarseps)

## Related

- [Side-hustle taxes, explained in plain English](https://christianbrinkleync.com/wealth/side-hustle-taxes)
- [Estimated quarterly taxes, explained](https://christianbrinkleync.com/guides/estimated-quarterly-taxes-guide)
- [Your 401(k), explained](https://christianbrinkleync.com/wealth/401k-explained)

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Educational content only, not financial or tax advice. Published by Christian Brinkley, christianbrinkleync.com.