SEP IRA vs. Solo 401(k) for creators and solo business owners
This guide is for general education and is not personalized investment advice. Your situation is unique. Consider talking with a qualified professional before making financial decisions.
When you get paid as a business owner from brand deals, sponsorships, or client work, nobody slides a 401(k) enrollment form across the desk. No HR, no match, no automatic paycheck deduction. I run my own business too, so I've been on your side of this one. The good news: there are retirement accounts built exactly for people who work for themselves. Here are the two most popular ones, how they work, how they differ, and a calculator to see what each could look like for you.
wait, who's my 401(k) now?
What changes when you work for yourself
At a regular job, the retirement plan is picked for you. Contributions come out of your paycheck automatically, and there may be a match on top.
When you work for yourself, you are the boss, the employee, and the HR department. You pick the account, the provider, how much goes in, and when. That is a lot more freedom, and a lot more homework.
Think of it like moving from a furnished apartment into a house you own. You get to choose everything. You also notice pretty quickly that nobody left you a couch.
step zero
How you're set up changes the math
Before comparing accounts, it helps to know one thing: how your business is set up changes what your contributions are based on. And if you've never set anything up, that's fine: you can open either account without forming a company. In general:
| How you're set up | Contributions are generally based on |
|---|---|
| Nothing set up yet (you're automatically a sole proprietor), or a single-member LLC taxed as one (the default) | Your net self-employment earnings: your business profit, minus half of your self-employment tax and the contribution itself |
| S corporation (or an LLC taxed as one) | You get paid two ways: a W-2 salary as an employee of your own company, and distributions as the owner. Contributions are based on the salary, not the distributions. |
| C corporation | Also the W-2 salary your company pays you (less common for creators) |
This is general information, not tax advice. Which structure fits you, and how it affects your contributions, is exactly where a tax professional earns their fee. It is one of the first conversations worth having.
the simple one
Account 1: the SEP IRA
SEP stands for Simplified Employee Pension, and "simplified" is the whole point. Your business puts money into an IRA in your name. Only the business contributes. There is no separate "employee" contribution.
How much (2026): up to 25% of compensation, with a cap of $72,000. For sole proprietors and single-member LLCs, the math uses net self-employment earnings, so the percentage works out lower than 25% of your profit. IRS Publication 560 has the worksheets (and the calculator below does the math for you).
What people like about it:
- Easy setup. Many providers use a short form, and there is generally no annual filing with the IRS.
- Flexible. You choose how much to contribute each year, including nothing in a slow year.
- Generous deadline. You can set it up and fund it as late as your business tax return due date, including extensions.
The tradeoffs:
- No employee contribution, so at the same income the total you can put in is often lower than in a Solo 401(k), especially at lower and moderate incomes.
- No catch-up contributions for people 50 and older.
- If you hire employees who meet the eligibility rules, you generally contribute the same percentage of pay for them as for yourself. That's one reason SEPs are especially popular with one-person businesses.
- A Roth version (Roth SEP IRA) is now allowed, but not every provider offers it yet.
the boss AND the employee
Account 2: the Solo 401(k)
A Solo 401(k), which the IRS calls a one-participant 401(k), is for a business owner with no employees. Your spouse can be included. The key idea: you get to contribute wearing two hats.
- As the employee: up to $24,500 for 2026 (or 100% of your compensation, if that is less). If you are 50 or older, you can add an $8,000 catch-up. If you are 60 to 63, that catch-up is $11,250 instead.
- As the employer: up to 25% of compensation, calculated the same way as the SEP.
- Combined cap: $72,000 for 2026, not counting catch-up contributions.
Because of that employee hat, a Solo 401(k) generally leaves room for larger total contributions than a SEP at the same income.
What people like about it:
- The two-hat structure, which can mean more room to save.
- A Roth option for employee contributions, if your provider offers it (many do).
- Catch-up contributions once you turn 50.
The tradeoffs:
- More paperwork. Once the plan has $250,000 or more at the end of a year, you generally file Form 5500-EZ every year.
- More setup steps, and the deadlines for employee contributions are stricter than the SEP's, with special rules in the first year. Confirm them with your provider and tax professional.
- It only works while it is "solo." If you hire employees who meet the plan's eligibility rules, they generally have to be included, and the plan has to change.
- If you also have a day job with a 401(k), heads up: the $24,500 employee limit is per person, shared across all your plans.
wait, they have the same cap?
Same ceiling, different paths
You may have noticed both accounts top out at the same $72,000 (before catch-ups). The difference is how you get there. Your business structure, and how you pay yourself, decide which account leaves more room at your income. That's why I believe coordinating with a tax professional is crucial here: the "right" account often comes down to details on your tax return.
so, apartment or house?
An easy way to picture it
The SEP IRA is a studio apartment. One room, easy to set up, easy to maintain, and you can move in fast.
The Solo 401(k) is a house you can add rooms to. More space and more options, and yes, you are the one mowing the lawn (that is the paperwork).
Neither one is "better." They fit different situations, and what fits today may change as your business grows.
side by side
The quick comparison (2026)
| Feature | SEP IRA | Solo 401(k) |
|---|---|---|
| Built for | Any size business, including one-person | Owners with no employees (spouse can join) |
| Who contributes | The business only | You as employee and the business as employer |
| Max contribution | 25% of compensation, up to $72,000 | $24,500 employee + 25% employer, up to $72,000 combined |
| Catch-up (50+) | Not available | $8,000 ($11,250 at ages 60 to 63) |
| Roth option | Allowed, limited provider availability | Common for employee contributions |
| Annual IRS filing | Generally none | Form 5500-EZ once assets reach $250,000 |
| Setup deadline | Business tax return due date, including extensions | Generally by the tax filing deadline; employee contributions have stricter timing |
| If you hire | Eligible employees get the same percentage | No longer solo; plan must change |
These are not the only options. A SIMPLE IRA, and a regular Traditional or Roth IRA alongside either account, are also worth asking about. There are more advanced setups too, like profit-sharing plans and defined benefit plans, but we'll save that lesson for another day.
Figures are for the 2026 tax year and change most years. Confirm current numbers at IRS.gov or with a tax professional.
run the numbers
What could each account look like for you?
Enter a hypothetical year and switch between the tabs. It uses the IRS method for 2026 and does the self-employment math for you.
SEP IRA: estimated max for 2026
$0
How this is calculated
- Nothing set up yet, or a single-member LLC: self-employment tax is estimated on 92.35% of profit (Social Security portion up to the $184,500 wage base, minus any W-2 wages). The employer part is 20% of profit after half of that tax, which equals 25% of compensation under the IRS method.
- W-2 salary (S corp or C corp): the employer part is 25% of your W-2 salary.
- Solo 401(k): the employee part is up to $24,500 (less anything you put in at another job), limited to your compensation. Employee plus employer is capped at $72,000, and catch-up is added on top.
- It doesn't cover every rule (for example partnerships or multi-member LLCs, multiple businesses, a spouse on payroll, or your provider's plan terms).
Hypothetical estimate for the 2026 tax year only. This is not tax advice and doesn't show what you should contribute. Confirm your numbers with a tax professional before you open an account or contribute.
okay, which one is mine?
Questions to help you decide (with a pro)
The right answer depends on your income, your business setup, and your plans. These questions get you most of the way there.
Ask yourself
- Do I plan to hire anyone in the next few years?
- Do I want the simplest setup, or more options with more upkeep?
- Is my income steady, or does it come in big lumpy deals?
- How much yearly paperwork will I realistically keep up with?
Ask a tax professional
- Based on how my business is set up, what compensation are my contributions based on?
- About how much could I contribute to each account for this tax year?
- What are the deadlines in my situation, including any first-year rules?
- How do Roth and traditional contributions compare for someone in my situation?
- Would changing my business structure change any of this?
- If I also have a 401(k) at a day job, how does that affect my limits?
Ask a financial professional
- How would this account fit with everything else I own?
- With income that comes in waves, what are the common ways people handle contributions?
- What would the money be invested in, and what does it cost (account fees and fund expense ratios)?
- How are you compensated?
- Will you act as a fiduciary for this advice at all times?
The best results usually come when your tax professional and your financial professional are working from the same page.
the most important part
Keep it in perspective
The account is the easy part. Setting it up right with your tax pro, then actually funding it year after year, is what makes it work.
- Don't let choosing stall you. Both accounts are real, useful tools. Waiting another year to decide is a choice too.
- It doesn't have to be forever. What fits a one-person creator business today may look different when you are bigger.
- Numbers change. Limits adjust most years. Verify at IRS.gov before you contribute.
Sources: IRS, "SEP contribution limits (including grandfathered SARSEPs)," 2026. IRS, "Simplified Employee Pension plan (SEP)." IRS, "Retirement plans FAQs regarding SEPs." IRS, "One-participant 401(k) plans." IRS, "401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500" (IR-2025-111), 2025. IRS, "COLA increases for dollar limitations on benefits and contributions" (Notice 2025-67). IRS, Publication 560, Retirement Plans for Small Business, 2025. Social Security Administration, "Contribution and Benefit Base," 2026.
Don't have a tax professional yet? I work alongside a few I trust, and I'm happy to make an introduction. Reach out here.