Retirement

SEP IRA vs Solo 401(k)

Compare SEP IRAs and Solo 401(k)s for self-employed retirement saving — limits, flexibility, and admin overhead.

Overview

Both are designed for self-employed people and one-owner businesses. The Solo 401(k) generally lets you save more on a given income because of its employee deferral, allows Roth contributions, and permits loans. The SEP is simpler to set up and maintain.

Feature

SEP IRA

Solo 401(k)

2025 Contribution Limit

Up to 25% of net self-employment income, max $70,000

Up to $70,000 ($77,500 if 50+)

Roth Option

Roth SEP allowed but rarely supported by custodians

Yes — widely available

Employee Deferral Component

Yes — $23,500 employee deferral on top of employer side

Catch-Up Contribution

Yes — $7,500 (age 50+)

Loans Permitted

Yes — up to 50% of balance / $50,000

Setup Complexity

Very simple — IRS Form 5305-SEP

Plan document required; Form 5500 once balance > $250,000

Best Income Range

Higher self-employment income

Lower-to-mid SE income (employee deferral fills first)

Choose SEP IRA when...

Choose the SEP if you want zero admin, have variable annual income, or have eligible employees you would have to cover under a 401(k).

Choose Solo 401(k) when...

Choose the Solo 401(k) if you are a solo operator with no employees beyond a spouse — you can save more, contribute Roth, and access loans.

Our Verdict

For almost any self-employed person earning under ~$200,000, the Solo 401(k) lets you save more thanks to the $23,500 employee deferral. It also opens Roth contributions and loans. The SEP is the right pick only when simplicity matters more than capacity — or when your business has eligible employees who would force the SEP rules to apply equally to them.

Frequently Asked Questions

What is the difference between SEP IRA and Solo 401(k)?

When should I choose SEP IRA over Solo 401(k)?

Choose the SEP if you want zero admin, have variable annual income, or have eligible employees you would have to cover under a 401(k).

When should I choose Solo 401(k) over SEP IRA?

Choose the Solo 401(k) if you are a solo operator with no employees beyond a spouse — you can save more, contribute Roth, and access loans.

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