$
Solo 401(k)
More$41,970
Employee contribution$23,500
Employer (~25% of comp)$18,470
SEP-IRA
$18,470
Employer only$18,470
~25% of net SE × 0.9235
Solo 401(k) lets you contribute $23,500 more than SEP-IRA
At $80,000 net SE income, Solo's flat $23,500 employee contribution is the difference-maker.
Walkthrough
How each plan calculates max contribution
Solo 401(k)
Employee: Up to $23,500 flat (2025), plus $7,500 catch-up if 50+. Same limit as a workplace 401(k).
Employer: Up to 25% of (net SE income × 0.9235), counted as compensation.
Combined cap: $70,000 for 2025 ($77,500 with catch-up).
SEP-IRA
Employer-only contribution. Up to 25% of net earnings from self-employment after the half-SE-tax adjustment.
For self-employed individuals, this works out to roughly 20% of net SE income.
Combined cap: Same $70,000 — but you can only reach it at very high income.
When to pick SEP-IRA anyway
- Late starter: SEP can be opened and funded by your tax deadline (with extensions), giving you up to October to fund last year's contribution. Solo 401(k) generally must be established by Dec 31.
- Simplicity: SEP has zero plan documents — set up in 10 minutes at any major brokerage. Solo 401(k) requires plan documents and Form 5500-EZ once balance exceeds $250,000.
- You may hire someone: SEP rules can sometimes exclude part-time employees more cleanly than Solo 401(k), which generally requires non-spouse employees to be eligible.
- You also have a W-2 day job with a 401(k) you're already maxing — SEP's contribution is independent, while Solo's employee portion is shared with the W-2 plan.
Questions
Frequently asked questions
Solo 401(k) vs SEP-IRA: which lets me contribute more?▾
Solo 401(k) wins at low to moderate net SE income. SEP-IRA contributions are limited to ~20% of net SE income (technically 25% of compensation, which works out to ~20% after the half-SE-tax adjustment). Solo 401(k) lets you contribute up to $23,500 as the 'employee' regardless of income, PLUS up to ~20% as the 'employer' — so at $50,000 net SE, Solo gets you to ~$33k while SEP only gets you to $10k. Both cap at the combined $70,000 (2025) for total contributions excluding catch-up.
When does SEP-IRA make more sense than Solo 401(k)?▾
Three scenarios: (1) you have part-time W-2 employees other than your spouse — Solo 401(k) requires ANY non-spouse employee to also be covered (expensive), but SEP can sometimes exclude part-timers; (2) administrative simplicity — SEP has zero plan documents and is set up in minutes at any major brokerage; (3) you're starting late in the year for last year's contribution — SEP can be opened and funded by your tax filing deadline (including extensions), Solo 401(k) generally must be established by Dec 31.
Can I do both Solo 401(k) and SEP-IRA in the same year?▾
Technically yes if you have multiple businesses, but for a single business it doesn't help — the combined contribution limits ($70k for 2025) apply across all your retirement accounts as the employer. Practically, pick one. Most self-employed people pick Solo 401(k) for the higher contributions and Roth option.
Does Solo 401(k) allow Roth contributions?▾
Yes — most modern Solo 401(k) plans (Vanguard, Fidelity, Schwab, eTrade, Carry, MySolo401k) offer Roth on the employee portion. The employer profit-sharing portion is always traditional/pre-tax. SEP-IRA does NOT have a Roth version (SECURE 2.0 introduced Roth SEP/SIMPLE in 2023, but most providers haven't implemented it yet as of 2025).
What if I have a W-2 day job AND self-employment income?▾
The $23,500 employee limit is per person, not per plan — so if you contributed $20,000 to your day-job 401(k), you can only contribute $3,500 as employee to your Solo 401(k). But the employer portion (~20% of net SE income) is independent and stacks on top, up to the combined $70k cap. SEP-IRA contributions are independent of any W-2 401(k) — full ~20% of SE income regardless of what you put in your day-job plan.
What's the deadline to set up and contribute to each?▾
Solo 401(k): plan must be established by Dec 31; employee contributions due by your tax deadline (April 15 / Oct 15 with extension); employer contributions due by tax deadline + extensions. SEP-IRA: both establishment AND contribution by your tax deadline + extensions — much more flexibility for last-minute funding. So for a 2025 contribution: Solo 401(k) needs to be open by Dec 31, 2025; SEP-IRA can be opened and funded as late as October 2026.
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