Self-Employed · Retirement · Solo 401(k) vs SEP IRA
Solo 401(k) vs SEP IRA Calculator 2026
Most self-employed people default to a SEP IRA because it's simple — and leave $20,000 or more on the table every year without realizing it. This tool shows exactly how much more you could save in a Solo 401(k) at your specific income, and whether the extra setup is worth it for you.
The number that surprises people: At $50,000 in net self-employment income, a Solo 401(k) lets you contribute roughly $32,800 — a SEP IRA caps out around $9,300 at the same income. That's not a rounding error. That's the difference between funding your retirement and barely touching it.
Start the Calculator
YOUR NUMBERSStep 1 of 4
Step 1 — Your Income
What's your net self-employment income this year?
Net income = revenue minus business expenses, before retirement contributions. Check your Schedule C or a recent P&L.
$
Step 2 — Your Age
What's your age?
This determines your catch-up contribution eligibility — a meaningful boost if you're 50+.
Step 3 — Your Current Setup
Do you currently have a retirement plan for your self-employment income?
SEP IRA
Currently using one
Solo 401(k)
Already have one
None yet
Haven't started
Other plan
Traditional/Roth IRA only
Step 4 — Your Business Structure
How is your business structured?
This affects how your contribution limit is calculated.
Sole Proprietor / LLC
Report on Schedule C
S-Corp
Pay myself a W-2 salary
Your W-2 salary from the S-Corp
$
⚠️ Your salary must meet IRS "reasonable compensation" standards for your role and industry — setting it artificially low to dodge payroll tax (while inflating distributions) is a common audit trigger. This calculator uses whatever salary you enter; it doesn't verify reasonableness.
⚠️ Not investment or tax advice: This calculator shows contribution limit estimates based on 2026 IRS figures (Notice 2025-67). It does not account for every plan-specific rule, provider fee, or your complete tax situation. Confirm your exact contribution with your plan provider or a CPA before filing.
Why the Same Income Produces Wildly Different Contribution Limits
The core difference is structural. A SEP IRA only allows an "employer" contribution — capped at roughly 20% of your net self-employment income (the math nets out to 20%, not the commonly cited 25%, because of how the self-employment tax deduction interacts with the calculation). A Solo 401(k) lets you contribute in two roles: as the "employee," you can defer up to $24,500 in 2026 regardless of income level, and as the "employer," you can add roughly 20% of net income on top of that — up to a combined $72,000 cap.
This is why the gap is so large at moderate income levels. A SEP IRA needs roughly $360,000 in net income to hit the same $72,000 combined cap that a Solo 401(k) can reach with much less — because the employee deferral alone is a flat $24,500 that doesn't depend on income at all.
The Deadline Trap Almost Everyone Misses
A Solo 401(k) must be legally established by December 31 of the tax year you want to contribute for — even though the actual funding can happen later, up to your tax filing deadline (including extensions). A SEP IRA has no such cutoff: you can open and fully fund one as late as your extended filing deadline the following year. This means if you're reading this in Q4 and you don't have a Solo 401(k) open yet, the clock is real. Many self-employed people miss the December 31 window and default to a SEP IRA for that year simply because they ran out of time — leaving the higher Solo 401(k) contribution room unused for that entire tax year.
Solo 401(k) employee deferral: $24,500 (under 50). Combined employee + employer cap: $72,000. Catch-up for ages 50-59 and 64+: additional $8,000 (total $80,000). Enhanced catch-up for ages 60-63: additional $11,250 (total $83,250). SEP IRA: employer-only contribution, same $72,000 combined cap but reached only through the ~20% net income formula — no employee deferral component and no catch-up contributions of any kind.
Frequently Asked Questions
The 25% figure applies directly to W-2 employees at a regular company. For self-employed individuals, the formula is circular: your contribution reduces your net earnings from self-employment, which is also the base the contribution is calculated from. After accounting for the deduction of half your self-employment tax and solving the circular math, the effective rate works out to approximately 20% of your net self-employment income (technically 18.587% after precise adjustments, but 20% is the standard quick-math approximation used by most CPAs and providers). This is one of the most commonly misunderstood numbers in self-employed retirement planning.
Yes — you can open a Solo 401(k) at any point before December 31 and it will apply to that full tax year's contributions, even if you already have an existing SEP IRA. Many self-employed people run both plans temporarily. However, be aware: if your SEP IRA is still open and receiving contributions, having both plans in the same year can complicate your total contribution limit tracking since the $72,000 combined cap applies across ALL your defined contribution plans combined, not per plan. Most advisors recommend fully transitioning to the Solo 401(k) rather than running both indefinitely.
Yes, and the math changes slightly in your favor. As an S-Corp owner, your contribution base is your W-2 salary (not your total business profit), and the 25% employer contribution rate applies directly to that salary without the 20% self-employment tax adjustment that sole proprietors have to make. This is one reason some higher-earning self-employed people elect S-Corp status — it can make it easier to maximize retirement contributions with a lower reported salary, though the right salary level involves its own "reasonable compensation" rules. Use our LLC vs S-Corp Calculator to see if S-Corp election makes sense for your income level first.
Your employee deferral limit ($24,500 in 2026) applies across ALL 401(k) plans combined — you cannot defer $24,500 at your day job AND another $24,500 into your Solo 401(k). But the employer-side contribution to your Solo 401(k) is separate and unaffected by your day job's plan — you can still contribute up to ~20% of your net self-employment income as the "employer," even if you've already maxed your employee deferral elsewhere. This makes a Solo 401(k) still valuable for side hustlers with a day job 401(k), just calculated slightly differently.
Most Solo 401(k) providers (Fidelity, Schwab, E*TRADE and others) allow Roth employee deferrals — meaning you pay tax now but withdrawals in retirement are tax-free. This is unlike a SEP IRA, which historically only allowed pre-tax contributions (Roth SEP IRAs now technically exist under SECURE 2.0 but remain rare among providers). A Roth election generally makes more sense in lower-income years or if you expect your tax rate to be higher in retirement than it is now. Some Solo 401(k) plans also allow after-tax contributions beyond the standard limits, which can be rolled into a Roth IRA — a strategy known as the "mega backdoor Roth," worth discussing with a CPA if you're maxing out your standard limits.