Comparison Guide

SEP IRA vs Solo 401(k)

SEP IRA vs Solo 401(k) compared for freelancers and self-employed. Higher limits, Roth options, and loan access. See which is right for your business.

Side-by-Side Comparison

SEP IRA

Pros

+Simple to set up — one form and you're done
+High contribution limits — up to $69,000 in 2026
+No annual filing requirements
+Flexible contributions — change the amount year to year
+Can open at any major brokerage in minutes

Cons

-No Roth option — all contributions are pre-tax only
-Contributions based on % of income (25% of net self-employment)
-If you have employees, must contribute same % for them
-No employee contributions — only employer contributions

Best For

Solo freelancers/contractors with no employees who want the simplest possible setup.

Solo 401(k)

Pros

+Higher effective contribution limits for lower incomes
+Roth option available — tax-free growth
+Both employee ($23,500) AND employer contributions
+Loan provisions — borrow from your own retirement
+Catch-up contributions at 50+ ($7,500 extra)

Cons

-More paperwork — annual Form 5500 if over $250K
-Only for business owners with no full-time employees (spouse OK)
-More complex to set up than SEP IRA
-Some brokerages don't offer solo 401(k) plans

Best For

Self-employed individuals who want Roth contributions, higher contribution room at moderate incomes, or loan access.

Feature	SEP IRA	Solo 401(k)
Top Advantage	Simple to set up — one form and you're done	Higher effective contribution limits for lower incomes
Biggest Drawback	No Roth option — all contributions are pre-tax only	More paperwork — annual Form 5500 if over $250K
Best For	Solo freelancers/contractors with no employees who want the simplest possible setup.	Self-employed individuals who want Roth contributions, higher contribution room at moderate incomes, or loan access.

Glen's Verdict

Former hedge fund manager, current index fund enthusiast

Solo 401(k) if you want the Roth option or make under ~$200K. At lower incomes, the Solo 401(k) lets you shelter more money because of the dual employee+employer contribution structure. At high incomes ($300K+), the SEP IRA catches up and is simpler. As a freelance Salesforce developer, I use a Solo 401(k) because I want the Roth option. The tax-free growth on my Roth 401(k) contributions will be enormous by retirement. The extra paperwork is worth it.

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Frequently Asked Questions

Which is better, SEP IRA or Solo 401(k)?

It depends on your situation. SEP IRA is best for: Solo freelancers/contractors with no employees who want the simplest possible setup. Solo 401(k) is best for: Self-employed individuals who want Roth contributions, higher contribution room at moderate incomes, or loan access.

What are the main differences between SEP IRA and Solo 401(k)?

The key differences come down to their strengths. SEP IRA advantages include simple to set up — one form and you're done and high contribution limits — up to $69,000 in 2026. Solo 401(k) advantages include higher effective contribution limits for lower incomes and roth option available — tax-free growth.

Can I have both SEP IRA and Solo 401(k)?

In many cases, yes. Having both can provide diversification and flexibility. Evaluate your specific needs, goals, and eligibility requirements to determine if using both makes sense for your situation.

What are the downsides of SEP IRA?

No Roth option — all contributions are pre-tax only Contributions based on % of income (25% of net self-employment) If you have employees, must contribute same % for them No employee contributions — only employer contributions

What are the downsides of Solo 401(k)?

More paperwork — annual Form 5500 if over $250K Only for business owners with no full-time employees (spouse OK) More complex to set up than SEP IRA Some brokerages don't offer solo 401(k) plans

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