In Short
A Solo 401(k) lets you contribute twice: as the employee (up to $24,500 in 2026, plus catch-ups from age 50) and as the employer (20% of net self-employment earnings for a sole prop, or 25% of W-2 salary from an S-Corp). A SEP IRA allows only the employer part. On $100,000 of sole-prop profit in 2026, that's $43,087 in a Solo 401(k) vs $18,587 in a SEP IRA. Both are capped at $72,000 before catch-ups [1][2][3].
How to Use the Solo 401(k) vs SEP IRA Calculator
- Pick how your business is taxed: sole prop or single-member LLC, or an S-Corp that pays you a W-2 salary.
- Enter your net profit (sole prop) or your W-2 salary (S-Corp), and your age at the end of the year.
- If you also defer into a 401(k) at another job, enter that amount: the employee limit is per person.
- Set your tax bracket to estimate the tax saved, or tap Say It All: “I'm a sole proprietor with 150k net profit, I'm 52, in the 24 percent bracket.”
The Formula
For a sole prop, the IRS counts your compensation as net profit minus half of your self-employment tax. A 25% plan rate on that figure works out to 20% (0.25 ÷ 1.25), from the Rate Table for Self-Employed in Publication 560 [2]. For an S-Corp owner, the employer part is 25% of W-2 pay.
- Sole prop compensation = net profit − ½ × self-employment tax
- Employer contribution = 20% × compensation (sole prop) or 25% × W-2 salary (S-Corp), counting at most $360,000 of pay (2026)
- Solo 401(k) = employee deferral (up to $24,500) + employer contribution, at most $72,000 and 100% of compensation, plus any catch-up
- Catch-up (2026) = $8,000 at 50+, or $11,250 at ages 60–63
- SEP IRA = employer contribution only, at most $72,000
Worked Examples
| Scenario | Inputs | Result |
|---|---|---|
| Sole prop, $100,000 profit, age 45 | 2026 · SE tax $14,130 · compensation $92,935 | Solo 401(k) $43,087 ($24,500 + $18,587) · SEP IRA $18,587 |
| Sole prop, $60,000 profit, age 35 | 2026 | Solo 401(k) $35,652 · SEP IRA $11,152 |
| Sole prop, $150,000 profit, age 52 | 2026 · $8,000 catch-up | Solo 401(k) $60,381 · SEP IRA $27,881 |
| Sole prop, $250,000 profit, age 61 | 2026 · $11,250 catch-up (ages 60–63) | Solo 401(k) $82,793 · SEP IRA $47,043 |
| S-Corp, $80,000 W-2 salary, age 45 | 2026 | Solo 401(k) $44,500 ($24,500 + $20,000) · SEP IRA $20,000 |
Illustrative examples, not projections. Figures use the tax year shown and the assumptions above.
What Is the Difference Between a Solo 401(k) and a SEP IRA?
A Solo 401(k), also called a one-participant 401(k), covers a business owner with no employees, or the owner and a spouse. You contribute as the employee and as the employer [3]. A SEP IRA takes employer contributions only: no employee deferrals and no catch-ups [4].
At lower incomes the employee deferral makes the Solo 401(k) hold much more. As income rises, the 20% or 25% employer part grows until both plans meet the same $72,000 ceiling for 2026 [1]. A SEP is simpler to run; a Solo 401(k) with $250,000 or more in assets files Form 5500-EZ each year [3].
Why Is It 20% for a Sole Prop and 25% for an S-Corp?
Both are the same 25% plan rate. An S-Corp owner's pay is the W-2 salary, so 25% applies to it directly. A sole prop's “compensation” is net earnings after the deduction for half of self-employment tax and after the contribution itself, which makes the effective rate 20% of net earnings before the contribution [2].
For an S-Corp, only W-2 salary counts. Distributions don't, which is why the salary you set affects how much you can put away.
What Are the 2026 Contribution Limits?
For 2026: $24,500 employee deferral, $8,000 catch-up at 50 or older, $11,250 catch-up at ages 60 to 63, $72,000 total contributions per plan before catch-ups, and $360,000 of compensation counted [1]. For 2025 the figures were $23,500, $7,500, $11,250, $70,000 and $350,000 [2]. Switch the tax year above to compare.
The employee deferral limit is per person across all your plans. If you defer at a day job, that amount comes off what you can defer here [3].
Frequently Asked Questions
How much can I put in a Solo 401(k) in 2026?
Up to $24,500 as the employee, plus 20% of net self-employment earnings (sole prop) or 25% of W-2 salary (S-Corp) as the employer, capped at $72,000 in total. At 50 or older add $8,000; at 60 to 63, $11,250 [1].
How much can I contribute to a SEP IRA on $100,000 of profit?
About $18,587 for 2026. Net profit of $100,000 less half of the $14,130 self-employment tax leaves $92,935, and 20% of that is $18,587 [2][4].
Can I have a Solo 401(k) and a 401(k) at work?
Yes. Your employee deferrals across both plans share one limit ($24,500 in 2026), but the employer contribution from your own business has its own $72,000 limit [3].
When is the deadline for SEP IRA contributions?
The due date of your business tax return, including extensions. A SEP can also be set up as late as that date [2].
Does a Solo 401(k) or SEP IRA lower my taxes?
Pre-tax contributions reduce taxable income, so at a 24% federal bracket each $10,000 saves about $2,400 of federal income tax this year. Roth Solo 401(k) deferrals don't lower this year's tax. Neither lowers self-employment tax.
Sources
- Notice 2025-67: 2026 retirement plan limits — Internal Revenue Service
- Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) — Internal Revenue Service
- One-participant 401(k) plans — Internal Revenue Service
- SEP contribution limits (including grandfathered SARSEPs) — Internal Revenue Service
- 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500 — Internal Revenue Service
Official sources only: the IRS, SSA, BLS and other government agencies. Read how Zentavos researches.