If you're self-employed — freelancer, consultant, contractor, small business owner — you have access to retirement accounts with far higher contribution limits than salaried employees. Most people with a 1099 don't fully use them. That's an expensive oversight.
The two main options: the SEP IRA and the Solo 401(k). They're not equally good for everyone.
SEP IRA: Simple, High Limits
SEP-IRA (Simplified Employee Pension) lets you contribute up to 25% of net self-employment income, capped at $70,000 in 2026.
Pros:
- Extremely simple to open and maintain (most brokers have online setup in 20 minutes)
- Contributions can be made up to tax-filing deadline (including extensions)
- No annual filing requirements until assets exceed $250,000
Cons:
- Contributions are employer-only (you contribute as the business, not as an employee)
- Lower effective limit at lower income levels
- If you have employees, you must contribute the same percentage for all eligible employees — this makes SEP IRAs impractical for businesses with staff
Solo 401(k): Higher Limits at Lower Incomes
Solo 401(k) (also called Individual 401k or i401k) allows two types of contributions:
- Employee contribution: Up to $23,500 in 2026 ($31,000 if 50+)
- Employer contribution: Up to 25% of net self-employment income
Combined max: $70,000 ($77,500 if 50+) in 2026
The Key Difference: Why Solo 401(k) Wins at Lower Incomes
With a SEP IRA, all contributions are employer contributions (25% of income). With a Solo 401(k), you first make the full employee contribution before adding the employer percentage.
Example: $60,000 in net self-employment income
| Account | Calculation | Max contribution |
|---|---|---|
| SEP IRA | 25% × $60,000 | $15,000 |
| Solo 401(k) | $23,500 employee + 25% × $60,000 | $38,500 |
At $60,000 income, the Solo 401(k) lets you shelter $23,500 more than the SEP IRA.
The SEP IRA only "catches up" to Solo 401(k) limits at very high income levels (roughly $186,000+), where the 25% employer contribution alone fills the $70,000 cap.
Which Account Type Inside?
Both offer Traditional (pre-tax) versions. Solo 401(k)s can also be Roth — contributions are after-tax but growth and withdrawals are tax-free. This is a significant advantage if you expect higher taxes in retirement.
SEP IRAs are pre-tax only.
Complexity and Administration
SEP IRA: Open online in minutes, no annual filing, minimal paperwork. If you're self-employed and want the easiest possible setup, this is it.
Solo 401(k): Must be established by December 31 of the tax year (contribution deadline is still the filing deadline). Requires an IRS Form 5500-EZ once assets exceed $250,000. Slightly more paperwork. Still manageable for most people.
When to Choose Each
| Situation | Better choice |
|---|---|
| High income ($150k+ net SE income) | Either — limits are similar |
| Lower income ($40k–$120k net SE income) | Solo 401(k) — dramatically higher limits |
| Want Roth option | Solo 401(k) only |
| Have employees | SEP IRA (or consider SIMPLE IRA) |
| Want absolute simplicity | SEP IRA |
| 50+ and want catch-up | Solo 401(k) — $7,500 catch-up vs $0 for SEP |
The Bottom Line
- Solo 401(k) is better for most self-employed people earning under $150,000/year — dramatically higher limits
- SEP IRA is simpler, requires less setup, and works fine at higher incomes
- Solo 401(k) has a Roth option; SEP IRA does not
- Both let you contribute until your tax-filing deadline — use that flexibility to optimize your contribution after knowing your final income
Use our Retirement Calculator to model how maximizing your self-employed retirement contributions affects your retirement age and balance.
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