SEP IRA vs Solo 401(k): Which Is Better for the Self-Employed?
A Solo 401(k) generally allows higher contributions at lower income levels and offers Roth and loan options. A SEP IRA is simpler to set up and has no annual filing. For most self-employed people who want to maximize savings, a Solo 401(k) wins.
Key differences
| Feature | SEP IRA | Solo 401(k) |
|---|---|---|
| 2026 contribution limit | $72,000 (25% of comp) | $24,500 employee + 25% employer (total $72,000) |
| Roth option | No | Yes |
| Loan option | No | Yes (plan permitting) |
| Setup complexity | Simple (one form) | More paperwork |
| Annual filing | None | Form 5500-EZ if assets > $250k |
| Employee eligibility | Must include eligible employees | Only owner (+ spouse) |
Why Solo 401(k) usually wins for maximizing savings
With a SEP IRA, all contributions are employer contributions, capped at 25% of compensation. With a Solo 401(k), you can make both an employee deferral (up to $24,500 in 2026) and an employer profit-sharing contribution (up to 25% of compensation). This means you can reach the maximum contribution at a lower income level with a Solo 401(k) than with a SEP IRA.
When a SEP IRA is better
If you have employees you'd need to cover in a Solo 401(k), a SEP IRA may be simpler. Also, if your income is very high and you don't need the employee-deferral head start, the contribution ceiling is the same. And if you want to avoid Form 5500-EZ filing, a SEP IRA has no annual filing requirement.
Frequently asked questions
Can I have both a SEP IRA and a Solo 401(k)?
You can have both, but the combined annual addition limit ($72,000 in 2026) applies across all defined contribution plans for the same employer.
What is a self-directed IRA vs a Solo 401(k)?
A self-directed IRA is an IRA that allows alternative investments. A self-directed Solo 401(k) is a Solo 401(k) with the same flexibility. The Solo 401(k) has higher contribution limits and a Roth option.
Does a SEP IRA have a Roth option?
No. SEP IRAs are pre-tax only. If you want Roth treatment as a self-employed person, a Solo 401(k) with a designated Roth account is the option.
Sources
Gleefund explains general retirement-account concepts and provides estimates. It does not provide financial, tax, or legal advice. See our disclaimer and methodology. Check the current IRS rules before acting.
Figures current as of 2026-09-25. Found an error? Contact us.