Question 1

Which is better, SEP IRA or Solo 401(k)?

Accepted Answer

It depends on your income, whether you have employees, and whether you want Roth contribution options. A Solo 401(k) generally allows higher contributions at incomes below roughly $250,000 and offers Roth options. A SEP IRA is simpler to set up and maintain. Use the calculator above to compare both plans based on your specific situation.

Question 2

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

Accepted Answer

Technically yes, but it rarely makes sense. If you contribute to both in the same year, the total employer contributions across both plans are subject to the same IRS limits. Most self-employed individuals choose one plan. Having both adds complexity without increasing your total contribution capacity.

Question 3

Is a Solo 401(k) better for high income self-employed workers?

Accepted Answer

At very high incomes (roughly above $360,000 in net self-employment income), the maximum contribution for both plans converges near the same limit. The Solo 401(k) advantage is most significant at moderate incomes ($50,000 to $250,000) because of the employee elective deferral component. At high incomes, plan choice may depend more on Roth access and administrative preferences.

Question 4

Is a SEP IRA easier to manage?

Accepted Answer

Yes. A SEP IRA has minimal paperwork. There is no annual IRS filing requirement until plan assets exceed $250,000. A Solo 401(k) requires filing Form 5500-EZ annually once assets exceed $250,000 and involves more setup documentation. For those who want simplicity, the SEP IRA is typically the easier option.

Question 5

Can I use a Solo 401(k) if I have employees?

Accepted Answer

Generally no. A Solo 401(k) is designed for self-employed individuals with no full-time employees other than a spouse. If you have eligible employees who work 1,000 or more hours per year, you typically cannot use a Solo 401(k). A SEP IRA or a standard 401(k) plan would be more appropriate.

Question 6

How much can I contribute to a SEP IRA?

Accepted Answer

For the 2026 tax year, the maximum SEP IRA contribution is the lesser of 25% of compensation or $72,000. For sole proprietors, the effective contribution rate is approximately 20% of net self-employment income after the self-employment tax deduction. There are no catch-up contributions for SEP IRAs.

Question 7

How much can I contribute to a Solo 401(k)?

Accepted Answer

For the 2026 tax year, the Solo 401(k) has two components: an employee elective deferral of up to $24,500, plus an employer profit-sharing contribution of up to 20-25% of compensation. The total combined limit is $72,000. If you are 50 or older, you can make an additional catch-up contribution of $8,000, bringing the total to $80,000. If you are ages 60-63, an enhanced catch-up of $11,250 applies, bringing the total to $83,250.

Question 8

What is the SECURE 2.0 Roth catch-up rule for 2026?

Accepted Answer

Starting in 2026, SECURE 2.0 requires that catch-up contributions be made as Roth (after-tax) contributions for anyone whose prior-year FICA wages exceed $150,000. This applies to Solo 401(k) catch-up contributions and does not affect the contribution limit, only the tax treatment of the catch-up portion. If your prior-year wages are at or below $150,000, you can still choose between pre-tax and Roth for your catch-up contributions.