Solo 401(k) vs SEP IRA: Which Is Better for Freelancers?

Freelancers have no employer plan and no match, but two accounts are built for people working for themselves: the Solo 401(k) and the SEP IRA. Both let you deduct contributions and grow savings tax-deferred. They differ in how much you can contribute, how flexible they are and how much paperwork they involve.

The short answer

For most self-employed people with no employees, a Solo 401(k) allows larger contributions at modest income, while a SEP IRA is simpler to open and run. If your profit is high enough to reach the maximum either way, the SEP's simplicity often wins. If your profit is moderate and you want to save a lot, the Solo 401(k) usually wins.

How contributions work

A Solo 401(k) has two buckets:

Employee deferral: you contribute up to $24,500 for 2026 (more if you are 50 or older), as long as you earn at least that much.
Employer contribution: your business adds up to about 20% of net self-employment earnings (the 25% employer rate is applied after subtracting half of self-employment tax and the contribution itself).

The combined limit for 2026 is $72,000, plus catch-up contributions for those 50 and older.

A SEP IRA has one bucket: an employer contribution of up to the same roughly 20% of net earnings for a sole proprietor, capped at the same $72,000 total.

An example

Say your net profit is $80,000. After deducting half of self-employment tax (about $5,650), your plan earnings are about $74,350. The employer share is about 20% of that, or roughly $14,900.

SEP IRA: about $14,900.
Solo 401(k): $24,500 of employee deferral plus about $14,900, for roughly $39,400.

Same income, more than twice the savings room, because the Solo 401(k) lets you contribute as both employee and employer.

Side-by-side comparison

Feature	Solo 401(k)	SEP IRA
Who can use it	Self-employed with no employees other than a spouse	Self-employed, may have employees (they must be included)
Contribution at moderate income	Higher, because of employee deferrals	Lower, employer share only
Roth option	Often available for deferrals, if the plan allows	Available under recent law, but not offered everywhere
Loans	Allowed by some plans	Not allowed
Paperwork	More setup; annual filing once assets exceed $250,000	Minimal
Setup deadline	Generally December 31 for deferrals, with a rule that lets some sole proprietors set up later	By your tax filing deadline, including extensions

When a Solo 401(k) makes sense

You want to save more than about 20% of your net profit.
You like the idea of Roth contributions.
You have no employees and do not plan to hire soon.

When a SEP IRA makes sense

You want the simplest setup, or you are catching up after year-end.
Your income is high enough that you will hit the combined maximum anyway.
You may hire employees, who would have to receive the same percentage contribution as you.

Deadlines to know

Employer contributions to either plan can generally be made up to your tax filing deadline, including extensions. Solo 401(k) employee deferrals have a stricter rule: the plan generally must exist by December 31, although a recent change allows some sole proprietors to establish a new plan and make employee contributions after year-end. Confirm the current rule with your provider or a tax professional.

Frequently asked questions

Can I have both?

You can, but your combined limits are shared, so there is rarely a reason to.

What if my income is uneven?

Both plans let you decide the amount each year, so you can contribute less in slow years.

Do I need an accountant?

Not to open either one, but a professional can help you calculate the exact limit.