Solo 401(k) vs SEP-IRA calculator
How much you can shelter in 2026 under each plan, what it saves in tax, and which one wins at your income.
US Uses United States federal tax rules
Updated August 28, 2026
Why the solo 401(k) usually wins
Both plans cap at $72,000 in 2026. That makes them look equivalent. They are not, because they get there differently.
A SEP-IRA has one contribution: the employer one, roughly 20% of your net self-employment income. That is the whole mechanism.
A solo 401(k) has two. You are both employee and employer, so you contribute in both capacities — up to $24,500 as an employee deferral, plus roughly 20% as the employer.
They converge only once 20% alone reaches the cap, at around $365,000 of profit. Below that the solo 401(k) shelters substantially more, and the gap is widest exactly where most freelancers sit.
The deadline that actually decides it
This matters more than the limits.
A solo 401(k) must exist by December 31. The plan has to be established before the year ends, and employee deferrals generally made by then too.
A SEP-IRA can be opened and funded right up to your filing deadline, including extensions — as late as October of the following year.
So you can finish a year, do your taxes in March, discover you owe more than expected, and then open a SEP and fund it to reduce the tax on a year that has already ended. You cannot do that with a solo 401(k).
Planning ahead before year end: open a solo 401(k). Already into the new year: a SEP is your only option, and a good one.
Catch-up contributions
- Under 50 — no catch-up
- 50–59 and 64+ — an extra $8,000
- 60–63 — an enhanced $11,250
Catch-up applies to the solo 401(k) only. SEP-IRAs allow no catch-up at any age, which widens the gap considerably for older savers.
What it does not reduce
Neither plan reduces self-employment tax. That is calculated on your profit before retirement contributions, so a $30,000 contribution still leaves the full 15.3% payable — see the self-employment tax calculator for what that part costs.
They reduce income tax only. Substantial — at a 24% marginal rate a $30,000 contribution saves roughly $7,200 — but not the ~38% people sometimes assume.
They also reduce your QBI deduction, since contributions lower qualified business income. The saving shown above accounts for this, which is why it is slightly less than marginal rate × contribution.
The employee restriction
A solo 401(k) is only available if you have no employees other than yourself and a spouse. Hire someone eligible and it must convert to a regular 401(k).
A SEP-IRA with employees requires you to contribute the same percentage of compensation for every eligible employee as for yourself. Contribute 20% for yourself and you contribute 20% for them.
Roth, briefly
The employee deferral portion of a solo 401(k) can usually be made as Roth — after-tax now, tax-free later. No deduction this year, so it will not help your current bill. In an unusually lean year, paying tax now at a low rate to avoid it later at a higher one can be the better trade.
The figures
Contribution limits are the 2026 statutory amounts. The employer rate is shown as "~20%" because the statute says 25% of compensation — but for the self-employed, compensation is net earnings after both the half-SE-tax deduction and the contribution itself, which solves to exactly 20% of profit less half your self-employment tax. It is not an approximation.
Contributing for an earlier year?
The limits change every year, and a SEP-IRA can still be funded for a year that has already ended — up to that year's filing deadline including extensions. So an earlier year's limits are not a history lesson; they may be the ones you need: