Solo 401(k) vs. SEP IRA: which is better for an owner-only business?
If you have no employees other than yourself and a spouse, you have two simple retirement plan options: a solo 401(k) or a SEP IRA. Both let you save far more than an IRA. The difference is how much you can put away at a given income, and how much paperwork comes with it. Not sure which fits? Request a plan review.
The quick comparison (2026)
| Feature | Solo 401(k) | SEP IRA |
|---|---|---|
| Who can use it | Owners (and spouses) with no other eligible employees | Any size business, but every eligible employee gets the same % of pay |
| Employee deferral | Up to $24,500 (catch-up $8,000 at 50+; $11,250 at 60–63) | None |
| Employer contribution | Up to 25% of W-2 pay (about 20% of net self-employment earnings) | Same: up to 25% of pay (about 20% of net self-employment earnings) |
| Maximum total | $72,000, plus catch-up | $72,000 |
| Roth option | Yes, if the plan allows it | Yes, since SECURE 2.0, if the provider allows it |
| Loans | Can be allowed | No |
| Annual filing | Form 5500-EZ once assets exceed $250,000 | None |
Why the solo 401(k) usually wins at moderate incomes
The solo 401(k) lets you contribute twice: once as the employee, through the deferral, and once as the employer. A SEP only has the employer piece. So at the same income, the solo 401(k) usually allows more.
Hypothetical example: an S corporation owner, age 45, pays herself a $100,000 salary. With a SEP, the business can contribute up to 25% of pay, or $25,000. With a solo 401(k), she can also defer $24,500 as the employee, for a total of up to $49,500. At much higher incomes, both plans reach the same $72,000 ceiling, and the difference narrows to the catch-up.
When a SEP IRA makes sense
- You want the least paperwork possible: no plan document beyond the IRS form, and no annual filing.
- Your income is high enough that the employer contribution alone reaches the limit.
- You are setting up a plan late: a SEP can generally be opened and funded up to your tax filing deadline, including extensions.
What changes when you hire
A solo 401(k) only works while you have no eligible employees other than owners and spouses. Once you hire someone who meets the plan’s eligibility rules, the plan must cover them, and it becomes a regular 401(k) with testing and more administration. With a SEP, a new eligible employee must receive the same percentage of pay you give yourself. Plan for this before you hire (see SIMPLE IRA vs. SEP IRA vs. 401(k)).
What about CalSavers?
A business whose only employees are its owners is not subject to the CalSavers mandate. If you receive a notice, you can record that on the CalSavers employer portal (see how to certify your CalSavers exemption).
Common questions
Can I have a solo 401(k) if my spouse works in the business?
Yes. A solo 401(k) can cover the owner and the owner’s spouse, as long as the business has no other eligible employees. Each spouse can make their own deferral.
Which lets me save more, a solo 401(k) or a SEP IRA?
At the same income, a solo 401(k) usually allows more, because it adds an employee deferral of up to $24,500 in 2026 on top of the employer contribution. Both plans share the same $72,000 overall limit, plus catch-up in a 401(k).
Does a solo 401(k) require a tax filing?
Yes, once plan assets exceed $250,000 at year-end, a solo 401(k) generally must file Form 5500-EZ each year. A SEP IRA has no annual filing.
Want to see the numbers for your income?
Tell us about your business and income, and we’ll compare what each plan would let you save. The initial plan review is complimentary, and we aim to reply within one business day.
Request a plan reviewGeneral educational information as of September 27, 2026; limits and rules change. Not individualized investment, tax or legal advice. Consult your tax adviser about your situation.