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Two Powerful Retirement Accounts for the Self-Employed
If you work for yourself, you can save much more for retirement than most employees. A SEP-IRA and a Solo 401(k) are the two most popular options. Both let you save a large amount and reduce your tax bill. This guide compares them so you can pick the right one.
Rates and figures as of May 2026.
SEP-IRA at a Glance
SEP stands for Simplified Employee Pension. It is easy to set up, requires almost no paperwork, and is offered by most major brokerages.
2026 contribution limit: Up to 25% of net self-employment income, with a maximum of $69,000.
Eligibility: Any self-employed person, freelancer, or sole proprietor. If you have employees, you generally must contribute the same percentage of compensation for them as you do for yourself. This is why it is less popular for businesses with staff.
Setup: Fill out IRS Form 5305-SEP and open an account with a brokerage. Takes about 15 minutes.
Tax treatment: Contributions are pre-tax. Your money grows tax-deferred and you pay income tax when you withdraw in retirement. There is no Roth option for a SEP-IRA.
Solo 401(k) at a Glance
A Solo 401(k), also called an Individual 401(k) or i401(k), is a full 401(k) plan designed for self-employed people with no employees (other than a spouse).
2026 contribution limit: Up to $69,000, plus a $7,500 catch-up if you are 50 or older. You contribute as both employer and employee:
- Employee contribution: up to $23,500 (or 100% of net income, whichever is less)
- Employer contribution: up to 25% of net self-employment income
Combined, these can reach $69,000 in 2026.
Eligibility: Self-employed with no full-time employees other than a spouse. Must have earned business income.
Setup: More paperwork than a SEP-IRA. You need to adopt a plan document, open an account, and file Form 5500-EZ once assets exceed $250,000.
Tax treatment: Traditional (pre-tax) contributions reduce your taxable income now. Many providers also offer a Roth Solo 401(k) option, where you contribute after-tax dollars and withdrawals in retirement are tax-free.
Which Has Higher Contribution Limits?
At higher income levels, they reach the same maximum ($69,000). But at lower income levels, the Solo 401(k) lets you save more.
Example: If you earn $60,000 in net self-employment income:
- SEP-IRA max: 25% x $60,000 = $15,000
- Solo 401(k) max: $23,500 employee + a portion as employer = potentially $30,000+
For income below about $200,000, the Solo 401(k) usually allows a larger contribution.
Roth Option: Solo 401(k) Wins
This is the biggest advantage of the Solo 401(k). The Roth option lets you pay taxes now and withdraw money tax-free in retirement. There is no Roth SEP-IRA. If tax-free retirement income is important to you, the Solo 401(k) is the better choice.
Which Should You Choose?
- Choose a SEP-IRA if you want simplicity, have a higher income (above $200,000), or have employees you may need to cover.
- Choose a Solo 401(k) if you want higher contribution limits at lower income levels, want the Roth option, or plan to make larger contributions relative to your income.
Both accounts work alongside other retirement savings. Compare Roth IRA vs Traditional IRA to decide if you also want a personal IRA on top of your business account. See how your retirement savings compare against the benchmarks by age. And if you are just getting started with investing, check out the best investment apps for beginners.
Frequently Asked Questions
What is the maximum SEP-IRA contribution for 2026?
The maximum is $69,000, or 25% of net self-employment income, whichever is less.
Can I have both a SEP-IRA and a Solo 401(k)?
Generally no. Most self-employed people choose one or the other. Consult a tax advisor if you are considering both.
What is the Solo 401(k) contribution limit for 2026?
The 2026 limit is $69,000 total ($76,500 with the catch-up for age 50+). This combines employee contributions (up to $23,500) and employer contributions (up to 25% of net income).
Does a Solo 401(k) have a Roth option?
Many providers offer it. Roth Solo 401(k) contributions are after-tax, and withdrawals in retirement are tax-free. Check your provider before opening an account.
When is the deadline to contribute to a SEP-IRA?
You can contribute for a given tax year up to your filing deadline, including extensions. With an extension, that can be as late as October 15.