Tax guide

SEP IRA vs Solo 401(k) for the Self-Employed

Short answer: A SEP IRA is the simplest way for a self-employed person to save big for retirement, while a Solo 401(k) usually lets you put away more at the same income and adds Roth and catch-up options. For 2026 both cap out at $72,000 in total contributions. Here is a plain-English comparison, and how Zero Fuss Taxes helps you pick the right one with an experienced, IRS-registered preparer who reviews every return.

What each plan is

A SEP IRA (Simplified Employee Pension) is an employer-funded IRA. You contribute as the business, up to 25% of your compensation (roughly 20% of net self-employment earnings after the SE tax adjustment), with a 2026 maximum of $72,000. There are no annual filings for most solo owners and almost any bank or brokerage can open one in minutes.

A Solo 401(k) (one-participant 401(k)) covers a business owner with no employees other than a spouse. You wear two hats: as the employee you can defer up to $24,500 of pay in 2026, and as the employer you can add up to 25% of compensation on top, with the same $72,000 combined cap. If you are 50 or older you can add an $8,000 catch-up, and ages 60 to 63 get a higher $11,250 catch-up if the plan allows it, amounts that sit on top of the $72,000 limit.

2026 limits at a glance

SEP IRA: lesser of 25% of compensation or $72,000. No catch-up contributions. Compensation counted is capped at $360,000.
Solo 401(k): $24,500 employee deferral + employer share, combined max $72,000, plus $8,000 catch-up at 50+ (or $11,250 at ages 60 to 63).
Solo 401(k) deferrals can be pre-tax or Roth. SEP contributions are pre-tax in most setups.

Which one usually wins

At lower or mid-range self-employment income, the Solo 401(k) almost always allows a larger contribution, because the $24,500 deferral does not depend on a percentage of your earnings. For example, on $80,000 of net earnings a SEP allows roughly $14,800, while a Solo 401(k) allows that same employer piece plus the full $24,500 deferral. At very high incomes the two converge at $72,000, and the SEP wins on simplicity.

Pick the SEP IRA if you want zero paperwork, you may add employees soon (SEPs must cover eligible employees at the same percentage), or you are setting up late. Pick the Solo 401(k) if you want the bigger deduction at your income level, Roth contributions, catch-up room, or the ability for a working spouse to contribute too. Note that once a Solo 401(k) passes $250,000 in assets you file a short Form 5500-EZ each year.

Deadlines that matter right now

A SEP can be opened and funded as late as your filing deadline including extensions, so if you extended your 2025 return you can still make a 2025 SEP contribution up to October 15, 2026. For Solo 401(k)s, it is best to have the plan established and deferral elections made by December 31 of the tax year, with employer contributions allowed up to the filing deadline. And since the second 2026 estimated tax payment is due June 15, mid-year is the ideal time to run the numbers, because retirement contributions lower the income those estimates are based on.

How Zero Fuss Taxes helps

We guide your intake, organize your documents, run the SEP vs Solo 401(k) math for your actual net earnings, and an experienced, IRS-registered preparer completes and reviews your return. You review and approve before anything is filed, with clear pricing and a real person to talk to.

Common mistakes to avoid

Using 25% of gross instead of the adjusted net self-employment figure (the IRS worksheet matters).
Opening a Solo 401(k) after year-end and expecting to make employee deferrals for the prior year.
Forgetting Form 5500-EZ once a Solo 401(k) tops $250,000.
Having a SEP and employees, then skipping the required contributions for them.
Filing without a human review.

FAQ

Do I need a professional for this?

Not always, but a human review catches missed credits, deductions, and errors that cost you money or delay your refund. We’ll tell you honestly what your situation needs.

How do I get started?

Start your guided intake online in about 2 minutes, upload documents securely, and a preparer takes it from there, with status updates at every step.

How much does it cost?

Simple W-2 returns start at $50 and self-employed returns at $150. Other returns are quoted after a quick review. We never base our fee on your refund.

General information, not tax advice for your specific situation. Rules can change, a human preparer reviews your facts before any return is filed.

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