Is a Solo 401(k) or SEP IRA better for self-employed?

The Solo 401(k) is better for most self-employed individuals because it allows both employee deferrals ($23,000) and employer contributions (25% of compensation), totaling up to $69,000. A SEP IRA only allows employer contributions (25%), missing out on the $23,000 employee deferral. The Solo 401(k) also offers Roth contributions and loan provisions that SEP IRAs do not.

What are the contribution limits for Solo 401(k) and SEP IRA in 2025?

Both have a total maximum of $69,000 ($76,500 if age 50+). The Solo 401(k) reaches this through $23,000 employee deferral + up to 25% of W-2 as employer contribution. The SEP IRA reaches it through employer contributions only (25% of compensation or 20% of net SE income). At incomes below ~$275,000, the Solo 401(k) allows significantly more total contributions.

When should I choose a SEP IRA over a Solo 401(k)?

Choose a SEP IRA only if: (1) You missed the December 31 deadline to establish a Solo 401(k) — SEP IRAs can be opened and funded up to your tax filing deadline, or (2) You have employees you must cover — SEP IRAs have simpler requirements but must cover all eligible employees at the same percentage.

Can I have both a Solo 401(k) and a SEP IRA?

Technically yes, but combined contributions cannot exceed $69,000 total. Having both adds complexity with no additional benefit. The Solo 401(k) alone provides more flexibility. If you already have a SEP IRA, you can roll it into a Solo 401(k) to consolidate.

Solo 401(k) vs SEP IRA: Which Retirement Plan Saves You More? (2025 Comparison)

Both let you shelter up to $69,000/year from taxes. But the Solo 401(k) wins for almost everyone. Here's the side-by-side math.

The Solo 401(k) and SEP IRA are the two most popular retirement plans for self-employed individuals. Both allow up to $69,000 in annual contributions ($76,500 if age 50+), both provide immediate tax deductions, and both offer tax-deferred growth. However, the Solo 401(k) is the better choice for nearly every self-employed professional because it allows an additional $23,000 in employee deferrals that the SEP IRA does not. This single difference can mean $7,000-$8,500 more in annual tax savings.

Side-by-side comparison: Solo 401(k) vs SEP IRA

Feature	Solo 401(k)	SEP IRA
Employee deferral (2025)	$23,000 ($30,500 if 50+)	None
Employer contribution	25% of W-2 (S-Corp) or 20% of net SE	25% of W-2 or 20% of net SE
Total maximum (2025)	$69,000 ($76,500 if 50+)	$69,000
Roth option	Yes	No
Loan provision	Yes (up to $50K or 50%)	No
Establishment deadline	December 31 of tax year	Tax filing deadline (with extensions)
Funding deadline	Tax filing deadline	Tax filing deadline
Employees allowed?	Owner + spouse only	Must cover all eligible employees
Admin complexity	Moderate (Form 5500 if over $250K)	Simple (no annual filing)

The contribution math: why Solo 401(k) wins below $275K

At lower and mid-range incomes, the Solo 401(k) allows significantly higher total contributions because of the $23,000 employee deferral:

S-Corp Salary	Solo 401(k) Total	SEP IRA Total	Difference
$60,000	$38,000 ($23K + $15K)	$15,000	+$23,000
$100,000	$48,000 ($23K + $25K)	$25,000	+$23,000
$150,000	$60,500 ($23K + $37.5K)	$37,500	+$23,000
$200,000	$69,000 ($23K + $50K, capped)	$50,000	+$19,000
$276,000+	$69,000 (capped)	$69,000 (capped)	$0

At $100,000 salary, the Solo 401(k) shelters $23,000 more than the SEP IRA. At a 32% bracket, that is $7,360 in additional tax savings per year.

When the SEP IRA is the right choice

The SEP IRA wins in exactly two scenarios: (1) You missed the December 31 deadline to establish a Solo 401(k) — a SEP IRA can be opened and funded up to October 15 with an extension. (2) You have W-2 employees — SEP IRAs must cover all eligible employees at the same contribution percentage, but the admin is simpler than a full 401(k) plan.

For a detailed analysis of how retirement contributions interact with your full tax picture, run your free tax assessment. See also our S-Corp Savings Calculator to model the salary + contribution optimization.

Solo 401(k) vs SEP IRA: Which Retirement Plan Saves You More? (2025 Comparison)

Side-by-side comparison: Solo 401(k) vs SEP IRA

The contribution math: why Solo 401(k) wins below $275K

When the SEP IRA is the right choice

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