SEP-IRA vs. Solo 401(k): Best Retirement Accounts for Self-Employed Workers in 2026

One of the biggest advantages of self-employment that most freelancers underutilize: you can contribute far more to a retirement account than a typical W-2 employee, and every dollar you contribute reduces your taxable income right now.

If you made $80,000 as a freelancer and contributed $20,000 to a SEP-IRA, you'd only pay income tax on $60,000. At a 22% marginal rate, that's $4,400 back in your pocket this year, plus tax-deferred growth on the full $20,000 until retirement.

Here's how the main options compare, and how to choose the right one for your situation.

The Three Main Options

SEP-IRA (Simplified Employee Pension)

A SEP-IRA is the simplest option for solo self-employed workers. Any sole proprietor, LLC member, or S-corp owner with no employees (or only themselves) can open one.

Contribution limit: The lesser of 25% of net self-employment income or $72,000 for 2026 ($70,000 for 2025; indexed to inflation - confirm the current limit at IRS.gov each year).

For a SEP-IRA, "net self-employment income" means your net profit from Schedule C, minus the deduction for half your self-employment tax. The effective contribution rate works out to about 20% of net Schedule C profit before accounting for the SE tax deduction.

Example: If your Schedule C net profit is $100,000:

• SE tax ≈ $14,130 (15.3% × 92.35% × $100,000)
• Deductible half of SE tax ≈ $7,065
• Adjusted net SE income ≈ $92,935
• Max SEP-IRA contribution ≈ $18,587 (20% × $92,935)

Key features:

• Contributions are made only by the employer (you, as the business owner) - no employee salary deferrals
• Easy to set up and administer. Most brokerages (Fidelity, Vanguard, Schwab) let you open one online in minutes
• Contributions can be made up to your tax filing deadline, including extensions (so as late as October 15 for a sole proprietor who files an extension)
• If you hire employees, you must contribute the same percentage of compensation to their SEP-IRAs as you contribute to your own

Solo 401(k) (also called Individual 401(k) or Self-Employed 401(k))

A Solo 401(k) is available to self-employed individuals with no full-time employees other than a spouse. It's more complex than a SEP-IRA but allows higher contributions at lower income levels.

2026 contribution structure has two components:

Employee deferral (as the "employee"): Up to $24,500 for 2026 ($23,500 for 2025), or $32,500 if you're age 50+ with the $8,000 catch-up ($31,000 with the $7,500 catch-up in 2025). If you are 60 to 63, the catch-up is $11,250 in both years. This is a flat dollar limit, not income-based. You can contribute 100% of your earned income up to this limit.

Employer contribution (as the "employer"): Up to 25% of W-2 wages (if operating as an S-corp) or the equivalent calculation for sole proprietors (~20% of net SE income).

Combined limit: $72,000 for 2026 ($80,000 with the age-50+ catch-up); $70,000 for 2025 ($77,500 with catch-up).

Example comparison at $60,000 net SE income:

	SEP-IRA	Solo 401(k)
Max employer contribution	~$11,152 (20% of ~$55,760)	~$11,152
Max employee deferral (2026)	$0	$24,500
Total max contribution	~$11,152	~$35,652

At moderate income levels, the Solo 401(k) wins decisively because of the employee deferral component - you can contribute far more as a percentage of your income.

Key features:

• Best practice is to set the plan up by December 31 of the tax year. Since SECURE 2.0, a sole proprietor with no employees can adopt a new Solo 401(k) after year-end and still make first-year employee deferrals, but only until the unextended return due date (April 15); a SEP-IRA can be opened and funded up to the extended deadline
• In later years, employee deferral elections must be made by December 31; employer contributions can be made up to the filing deadline including extensions
• Allows Roth contributions if the plan document permits it (Roth 401(k) inside the solo plan)
• More administrative complexity. You may need to file Form 5500-EZ once plan assets exceed $250,000
• Cannot have full-time employees other than a spouse. If you hire someone, you'll need to convert to a different plan type

SIMPLE IRA

The SIMPLE IRA (Savings Incentive Match Plan for Employees) is designed for small businesses with up to 100 employees, but solo self-employed workers can use it too.

2026 contribution limit: Up to $17,000 in employee deferrals ($21,000 if age 50+; $22,250 if age 60–63), plus a required employer match of either 3% of compensation or a flat 2% contribution. (2025: $16,500, with a $3,500 catch-up.)

For most solo freelancers, the SIMPLE IRA is inferior to both the SEP-IRA and Solo 401(k) because:

• The contribution limits are lower than Solo 401(k)
• The employer match adds required complexity
• Early withdrawal penalties are harsher in the first two years (25% instead of 10%)

The main scenario where SIMPLE IRA makes sense: you're starting a business, plan to hire employees soon, and want one plan that transitions seamlessly to a multi-employee setup.

Traditional vs. Roth: The Tax Timing Question

All three plans above offer traditional (pre-tax) contributions - you deduct contributions now and pay tax when you withdraw in retirement. If your income is high now and you expect lower income in retirement, traditional is typically better.

Roth Solo 401(k) contributions are made after-tax (no deduction now) but grow and withdraw tax-free in retirement. If you're early in your career, your income is lower than it will be later, or you believe tax rates will rise in the future, Roth makes sense.

Many financial planners recommend contributing to both - using pre-tax contributions to reduce current-year taxes when income is high, and Roth contributions in lower-income years to diversify your future tax exposure.

How Much Should You Contribute?

At minimum, try to contribute enough to:

1. Reduce your income into the next lower bracket
2. Offset anticipated quarterly tax payments

A practical framework for first-year freelancers: set aside 25-30% of every payment received into a separate savings account. At tax time, use that money to cover your tax bill and contribute the remainder to a retirement account.

As your income grows and stabilizes, work with a CPA to model the exact contribution that minimizes your current-year tax liability while building retirement savings.

Opening Your Account

All three plan types are available at major brokerages with no setup fees:

• Fidelity: Offers SEP-IRA and Solo 401(k), no annual fees
• Vanguard: Offers SEP-IRA and Solo 401(k), good for index fund investors
• Charles Schwab: Offers all three, with strong customer support

For Solo 401(k), you'll typically complete a plan adoption agreement and then open the investment account. Keep the plan documents - you'll need them for your records and eventually for Form 5500-EZ filing.

The Deadline Trap to Avoid

The most common mistake: assuming you have until October to open a Solo 401(k) for the prior tax year. You don't. Under SECURE 2.0, a sole proprietor with no employees can adopt a new Solo 401(k) after year-end and make first-year employee deferrals, but only until the unextended return due date - April 15 - and only for the plan's first year. Once the plan exists, later-year deferral elections must be made by December 31. SEP-IRAs are more forgiving - you can open and fund one up to your extended filing deadline in October.

If you're reading this after April 15 and haven't set up a retirement account, a SEP-IRA is your only option for reducing last year's taxes. Start your Solo 401(k) now so it's in place for the current tax year.

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WriteOff tracks your Schedule C income and expenses throughout the year so you can see in real time how much you're eligible to contribute to a SEP-IRA or Solo 401(k) before tax season.

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Sources

• IRS Publication 560: Retirement Plans for Small Business: SEP-IRA, Solo 401(k), and SIMPLE IRA rules
• IRS Retirement Plans for Self-Employed People: Overview and comparison
• IRS: COLA increases for dollar limitations on benefits and contributions: $70,000 / $23,500 for 2025 (Notice 2024-80); $72,000 / $24,500 for 2026 (Notice 2025-67)
• IRS: 401(k) limit increases to $24,500 for 2026: 2026 deferral, catch-up and SIMPLE limits
• IRS Form 5498 Instructions: SEP-IRA contribution reporting

2026 limits: SEP-IRA max $72,000 (25% of adjusted net SE income). Solo 401(k) employee deferral $24,500 ($32,500 age 50+; $35,750 age 60–63). Combined limit $72,000 before catch-ups. 2025 limits: $70,000 / $23,500 / $7,500 catch-up. Sources: IRS Notice 2025-67; IRS Notice 2024-80. Solo 401(k) adoption deadline for sole proprietors: SECURE 2.0 Act §317, summarized in IRS Publication 560.