SEP IRA or solo 401(k): what a self-employed person can put away in 2026
Both plans let a one-person business shelter part of its profit from income tax. They do not let you shelter the same amount. Enter your profit and age for both maxima.
Most you can put in a solo 401(k) for 2026
$43,087
A SEP IRA tops out at $18,587 at this profit
| Employee deferral | $24,500 |
| Employer share (20% of net earnings) | $18,587 |
| Federal tax saved at the solo 401(k) maximum | $5,243 |
Computed by Radif Partners from IRS documents for tax year 2026 · How we calculate · no email asked, nothing sold
For self-employed retirement savings in 2026, a solo 401(k) allows more than a SEP IRA at almost every profit level below the cap. Both share an overall ceiling of $72,000 per person under Notice 2025-67, and both allow an employer-style contribution worth 20 % of net earnings from self-employment for an owner, the Pub 560 equivalent of the 25 % rate employees get. Only the 401(k) adds an employee deferral of up to $24,500, plus a catch-up of $8,000 from age 50 or $11,250 at ages 60 to 63. At $120,000 of profit, a SEP tops out at $22,304 while a solo 401(k) reaches $46,804 for someone under 50; maxing the 401(k) cuts that single filer's federal tax by about $7,087. The SEP is simpler and can be opened as late as the return's extended due date; the solo 401(k) has more paperwork and a Form 5500-EZ once assets reach $250,000.
For anyone who works alone, the two plans the IRS describes in Publication 560 are the SEP, a simplified employee pension funded through an IRA, and the one-participant 401(k), also called a solo 401(k). Both are funded with business money that comes off your taxable income. The difference is in how many layers of contribution each allows, and that is what decides the maximum. Everything starts from net earnings from self-employment: the profit on Schedule C minus the deductible half of self-employment tax, and minus the contribution itself.
What the half-SE-tax deduction is worth
Income tax saved by the deduction
$1,399
| Deduction (half of SE tax) | $6,358 |
| SE tax itself | $12,717 |
QBI left out of this quick check.
Why the self-employed rate is 20 %, not 25 %
An employer can put up to 25 % of an employee's pay into a SEP or a profit-sharing plan. For your own account the math is circular, because the contribution reduces the very earnings it is measured on. Pub 560 solves this with a rate table: a plan rate of 25 % becomes a reduced rate of 20 % of net earnings for the owner, and a plan rate of 10% becomes 9.0909%, as the publication's own example shows. With $120,000 of profit, half of self-employment tax is $8,478, net earnings before the contribution are $111,522, and 20 % of that is $22,304. That figure is the whole SEP maximum and only the second layer of a solo 401(k).
The 2026 limits from Notice 2025-67
- Employee elective deferral to a 401(k): $24,500.
- Catch-up for those 50 or older at the end of the year: $8,000; for those turning 60, 61, 62 or 63 in 2026: $11,250 instead.
- Overall cap on contributions to defined contribution plans, catch-ups excluded: $72,000.
- Compensation that can be taken into account: $360,000.
- Traditional or Roth IRA, for comparison: $7,500.
Every figure above comes from Notice 2025-67. The deferral limit is personal, not per plan: Pub 560 states that it applies to all salary reduction contributions and elective deferrals together, so a freelancer who also defers through an employer's 401(k) shares the same $24,500 between the two plans.
Maximum contribution by profit and age
| Net profit | SEP IRA | Solo 401(k), under 50 | Solo 401(k), age 50 to 59 | Solo 401(k), age 60 to 63 |
|---|---|---|---|---|
| $30,000 | $5,576 | $27,881 | $27,881 | $27,881 |
| $50,000 | $9,294 | $33,794 | $41,794 | $45,044 |
| $80,000 | $14,870 | $39,370 | $47,370 | $50,620 |
| $120,000 | $22,304 | $46,804 | $54,804 | $58,054 |
| $200,000 | $37,177 | $61,677 | $69,677 | $72,927 |
| $300,000 | $56,909 | $72,000 | $80,000 | $83,250 |
| $450,000 | $72,000 | $72,000 | $80,000 | $83,250 |
Three patterns stand out. At modest profits the gap is wide: at $50,000, the SEP stops at $9,294 while a solo 401(k) reaches $33,794, because the employee deferral alone can absorb most of what the business earns. At the bottom of the table the catch-up columns stop helping, since a contribution can never exceed net earnings. And at the top, both plans converge on the $72,000 cap; only the catch-up keeps the 401(k) ahead there, because catch-ups sit outside the overall limit.
What the contribution saves
The deduction lowers income tax, not self-employment tax: Pub 560 has sole proprietors deduct contributions for themselves on line 16 of Schedule 1, after Schedule C, so the profit that Schedule SE starts from does not change. For a single filer at $120,000 with no state tax, the SEP maximum reduces the federal bill by about $3,926, and the solo 401(k) maximum by about $7,087. The money is taxed later, when withdrawn, unless a Roth option is used. Lower taxable income also shrinks the QBI deduction a little, which the calculator takes into account.
Deadlines and paperwork
A SEP can be set up for a year as late as the due date of that year's income tax return, extensions included, and contributions are deductible if made by that same date. That makes it the one plan you can still open for 2026 after the year has ended. Pub 560 mentions Form 5305-SEP, the IRS model agreement, as one way to set it up, and the account itself is held at a bank, insurer or other qualified financial institution.
The solo 401(k) is a qualified plan with a written plan document. Pub 560 says deductible contributions for a year can be made up to the due date of the return plus extensions. On set-up, it states that the plan must be adopted by the last day of the tax year for contributions to be deductible for that year, and that a sole proprietor whose new 401(k) is adopted after year-end, as its only participant, must pay elective deferrals into the plan before the unextended filing deadline for them to count for that first plan year. Read that paragraph of Pub 560 with the plan provider before relying on a late start. Once plan assets reach $250,000 at the end of a year, the IRS one-participant 401(k) page says a Form 5500-EZ is generally required.
Choosing between them
The solo 401(k) wins on the maximum below the cap, and it is the only one of the two with catch-ups for people 50 and over. The SEP wins on simplicity and on timing, and it does not reduce what you can put in your own IRA: Pub 560 confirms that employer contributions to a SEP IRA leave the IRA limit untouched. Hiring an employee changes both answers, since each plan then has to cover eligible staff, so the comparison here holds for a business with no employees other than the owner and, in some cases, a spouse. Retirement savings also interact with health insurance premiums and with an S corp salary, where the base becomes the wages you pay yourself rather than the profit; a CPA can weigh those together for your numbers.