Who can use a Solo 401(k)?

Self-employed individuals with NO non-spouse W-2 employees. Sole proprietors, single-member LLCs, partnerships with only spouse partners, and S-corp owner-employees all qualify. Adding any non-spouse W-2 employee disqualifies the plan.

Why does Solo 401(k) usually beat SEP-IRA?

Solo 401(k) has two contribution buckets: employee deferral ($23,000 + $7,500 catch-up if 50+) AND employer profit share (up to 25% of net SE comp). At low-to-mid profit levels, the employee deferral lets you shelter far more than SEP's 25% cap allows.

When does SEP-IRA win?

When admin simplicity is the priority. SEPs are set up with a one-page Form 5305-SEP and have essentially zero ongoing reporting. Solo 401(k) plans over $250K in assets require an annual Form 5500-EZ. If you're maxing both at the same SE comp, the contribution totals are similar but SEP is easier.

What about the December 31 deadline?

Solo 401(k) plans must be ESTABLISHED by December 31 to count for that tax year — though contributions can be funded up to the extended return due date (October 15). SEP-IRAs can be both established AND funded up to the extended due date — more flexible.

Free Calculator

Solo 401(k) vs. SEP-IRA Calculator

Compare maximum contribution limits and resulting tax savings between a Solo 401(k) and a SEP-IRA for self-employed owners with no non-spouse employees.

Your situation

For self-employed owners with no employees. Solo 401(k) usually wins because of the employee deferral piece; SEP wins when admin simplicity matters most.

Net self-employment profit$150,000

Your age45

50+ unlocks $7,500 catch-up contribution on Solo 401(k).

Marginal tax rate (federal + state)32%

Recommended plan

Solo 401(k)

$23,000 more shelter than the alternative

Solo 401(k) employee deferral$23,000

Solo 401(k) employer profit share$27,881

Solo 401(k) total contribution$50,881

SEP-IRA maximum contribution$27,881

Solo 401(k) tax savings (32%)$16,282

SEP-IRA tax savings (32%)$8,922

Solo 401(k) advantage in tax dollars$7,360

Read this carefully

Solo 401(k) must be established by December 31; contributions can be made up to the extended return due date. Solo 401(k) plans over $250K assets require Form 5500-EZ. Adding non-spouse W-2 employees disqualifies the Solo 401(k). Talk to a partner.

Estimates for educational purposes only — not tax, legal, or accounting advice. Your specific facts will change the result; confirm with a CPA before acting.

Read the deeper analysis

Choosing between these plans involves more than the contribution limit — admin complexity, future hiring plans, Roth eligibility, and integration with your business tax structure all matter.

Read the full guide Talk to a partner

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Glossary

Solo 401(k) vs. SEP-IRA Calculator

Your situation

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Self-Employment Tax

Contribution Margin

Quarterly Estimated Tax for Self-Employed and Business Owners

Solo 401(k) vs. SEP-IRA for Self-Employed Owners

Owner Compensation: Salary, Distribution, and Profit Sharing