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SEP or Solo 401(k)

SEP vs Solo 401(k) Calculator

The solo 401(k) allows a larger contribution at almost every income — and there are two cases where that stops being true. This page runs both plans on the same profit, so the gap is a number rather than an assertion, and it names the two situations where the smaller plan is the right one.

Prepared for the 2026 tax year.

The gap is the deferral. A SEP has no employee side — every dollar of it is an employer contribution, and an employer contribution is capped at 25% of compensation. A solo 401(k) can take $24,500 as a deferral first, which never passes through that 25% test.

Schedule C line 31, before any retirement contribution.
The catch-up only exists on the 401(k) side — a SEP has none, at any age.
Leave at zero if none. This is the field that changes the answer: the deferral limit is per person, not per plan, so anything deferred at a job is already spent here.
The Form 7206 figure. It reduces profit before either plan's rate applies, so it lowers both answers together.

Enter your profit, and whether you have already deferred into a plan at a job. The page works out both plans on the same figures — and tells you which one the gap favours, including the case where the answer is the smaller plan.

The larger plan for you —
SEP IRA $0
Solo 401(k) $0
Difference $0
Your deferral room left $0 The elective deferral limit is per person. Anything you deferred at a job has already used part of it.

Want the working for one of them? The Solo 401(k) Calculator shows all twenty-one steps of the Publication 560 worksheet and which limit binds at your income.

Or the other plan in full? The SEP IRA Calculator covers the eligibility gate, the reduced rate, and the deductions that compete with it.

Considering a SIMPLE instead? The SIMPLE IRA Calculator shows what that plan allows and why its $17,000 deferral sits inside the same $24,500 ceiling rather than beside it.

Where these figures come from

Contribution ceiling
SEP ceiling
Separate from the 401(k) ceiling; the same $72,000 figure for 2026 ·
Both worksheets
IRS Publication 560, Chapter 5 — Deduction Worksheet for Self-Employed
Deferral is per person
IRS, one-participant 401(k) plans: the limit on elective deferrals applies "by person, not by plan"
Form 5500-EZ
Required once a one-participant plan holds $250,000 or more at year end · IRS retirement plans
Verified
4 October 2026
How this is worked out

Both plans are worked out with the same Publication 560 worksheet. The only difference between them is one number: whether an elective deferral is in the calculation.

SEP IRA contribution
The worksheet with no elective deferral
Pub. 560 (2025), steps 1 to 21 with step 9 left blank
Every dollar is an employer contribution, so the 25% test — reduced to 20% — applies to all of it. On a modest profit that is a small figure, and at a very low profit it can be zero.
Solo 401(k) contribution
The same worksheet, with the deferral taken first
Pub. 560 (2025), steps 9 to 19
The deferral does not pass through the 25% test. It is limited by compensation, not by a percentage of it, which is why the same profit supports a much larger total.
The deferral limit
$24,500 minus any deferral already made into another employer's plan
IRS, one-participant 401(k) plans — the limit is by person, not by plan
This is the case where the SEP wins. Once the deferral room is spent elsewhere, the 401(k) has nothing the SEP does not have — and the SEP brings no filing obligation.

The formulas are shown as the authority defines them, in its own terms — the arithmetic is not copyrightable and the rates are public-domain US government material. What these lines cannot tell you is where your figures came from; that is what the table above is for.

The gap, and where it closes

On $80,000 of profit the solo 401(k) takes about $39,370 and a SEP about $14,870 — a gap of roughly $24,500, which is the deferral. The two converge only near $400,000 of profit, where both reach the $72,000 ceiling and there is nothing left for the deferral to add.

At low profit the gap is proportionally largest, and the reason is not obvious. On $15,000 a SEP allows about $2,788 and a solo 401(k) about $13,940 — five times as much. A SEP has no employee side, so its entire contribution is tested against 25% of compensation; the 401(k) can place $24,500 before that test ever applies.

The two cases where the SEP is the right answer

One: you have already deferred somewhere else. The elective deferral limit is per person, not per plan. If you deferred $24,500 into an employer's 401(k) this year, your own plan has no deferral room left — and the only thing that made the solo 401(k) larger was the deferral. A SEP never had one to lose.

Two: the tax year is already over. A SEP can be established as late as the filing deadline including extensions and still count for that year. A 401(k) must exist before the year ends. There is no fixing that afterwards.

And a third consideration, smaller but real: a one-participant 401(k) must file Form 5500-EZ once it holds $250,000 or more at the end of a year. A SEP has no annual filing.

Frequently asked questions

Is a solo 401(k) always better than a SEP?

For the contribution figure, at almost every income — but not always overall, and not if you have deferred elsewhere. The 401(k)'s advantage is the elective deferral. Spend that allowance at a job and the advantage is gone, leaving a plan that asks more of you — a document, an election, and eventually a Form 5500-EZ — for the same money. If you are employed and self-employed at once, model your own numbers here rather than taking the usual advice.

Can I open a SEP after the year ends?

Yes, up to the filing deadline including extensions. That is a real advantage over a 401(k), which must be established before 31 December of the year it applies to. If you are reading this in January or February and the year has closed, the SEP may be the only one of the two still available to you for that year.

Why is the SEP so much smaller at low income?

Because all of it is an employer contribution. Publication 560 reduces an employer rate of 25% to 20% of net earnings, and applies it to a profit that has already had the self-employment tax deduction taken off. On $15,000 of profit that leaves $2,788. A solo 401(k) can place a $24,500 deferral first, and a deferral is limited by your compensation rather than by a percentage of it.

Can I run both plans?

You can maintain both, but the limits are applied across them as though they were one plan for the same business. A contribution to one reduces the room in the other. Opening a second account does not create a second ceiling.

Does the Roth option change the comparison?

It may, and it is not in the figure above. A solo 401(k) can accept designated Roth deferrals; a SEP cannot. If you would rather pay tax now and withdraw tax-free, that is a reason to choose the 401(k) that has nothing to do with how much fits — and the same is true of plan loans, which a SEP does not offer.

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