Freelancers don’t get a 401(k) match from an employer, but you do get access to two powerful retirement accounts built for self-employed people: the Solo 401(k) and the SEP IRA. Both let you contribute far more than a regular IRA and both can lower your taxes. The right choice depends mostly on how much you earn and how much you want to save. This guide compares a Solo 401k vs SEP IRA using 2026 numbers.
Short answer: a Solo 401(k) lets most freelancers contribute more at the same income, because you contribute as both “employee” (up to $24,500 in 2026) and “employer” (up to 20% of net self-employment earnings). A SEP IRA is simpler, with only the employer piece, and works best if you have high income or want minimal paperwork. Both are capped at $72,000 in total for 2026, not counting catch-up contributions.
Key takeaways
- 2026 limits: $24,500 employee deferral, $8,000 catch-up at age 50+ ($11,250 at ages 60–63), $72,000 combined cap.
- SEP IRA: up to roughly 20% of net self-employment earnings, with no employee deferral and no catch-up.
- At $60,000 of net profit, a Solo 401(k) allows about $35,600 versus about $11,100 in a SEP IRA.
- Solo 401(k)s offer Roth contributions and loans (if the plan allows); SEP IRAs are simpler to open and maintain.
- Solo 401(k)s are only for businesses with no employees other than you (and your spouse).
Solo 401k vs SEP IRA: side-by-side comparison
| Solo 401(k) | SEP IRA | |
|---|---|---|
| Who can open it | Self-employed with no employees (spouse allowed) | Any self-employed person or business |
| Employee contribution (2026) | Up to $24,500 | None |
| Catch-up (2026) | $8,000 at 50+; $11,250 at ages 60–63 | None |
| Employer contribution | Up to 20% of net self-employment earnings (25% of W-2 pay if you’re an S corp) | Same |
| Total cap (2026) | $72,000 + catch-up | $72,000 |
| Roth option | Yes, for employee deferrals (and employer contributions if the plan allows) | Possible under SECURE 2.0 if your provider offers it |
| Loans | Allowed if the plan permits | Not allowed |
| Paperwork | Plan document; Form 5500-EZ once assets exceed $250,000 | Very little: Form 5305-SEP or provider agreement |
| Deadline to contribute | Generally your tax filing deadline (with extensions for employer contributions) | Your tax filing deadline, including extensions |
| If you hire employees | Plan no longer qualifies as “solo” | Must contribute the same percentage for eligible employees |
2026 limits from IRS Notice 2025-67, as summarized by FinanceWonk. See the IRS pages in the sources for official plan rules.
How much can you contribute? Examples for 2026
For self-employed people, the employer contribution is based on net self-employment earnings: net profit minus half of your self-employment tax. The effective employer rate works out to 20% of that figure. Here’s what that means in dollars, assuming you’re under 50 and have no other retirement plan contributions:
| Net profit (Schedule C) | Net SE earnings* | SEP IRA max | Solo 401(k) max | Difference |
|---|---|---|---|---|
| $40,000 | $37,174 | $7,435 | $31,935 | +$24,500 |
| $60,000 | $55,761 | $11,152 | $35,652 | +$24,500 |
| $100,000 | $92,935 | $18,587 | $43,087 | +$24,500 |
| $150,000 | $139,403 | $27,881 | $52,381 | +$24,500 |
*Net profit minus half of self-employment tax. Rounded estimates for illustration; your plan provider or tax preparer will calculate exact limits. Employee deferrals can’t exceed your net self-employment earnings.
The gap is the $24,500 employee deferral, which only the Solo 401(k) allows. For most freelancers earning under about $300,000, that makes the Solo 401(k) the higher-limit option. At very high incomes, both plans hit the same $72,000 cap.
When a SEP IRA makes more sense
- You want the simplest possible setup. Many brokerages open a SEP IRA online in minutes, with no annual filings.
- You’re deciding late. You can open and fund a SEP IRA up to your tax filing deadline, including extensions.
- You only want to save a moderate percentage of your income, so the employee deferral doesn’t matter.
- You plan to hire employees soon and accept contributing for them too.
- You already max out a 401(k) at a day job. The $24,500 employee deferral limit is shared across all your 401(k) plans, so a Solo 401(k)’s main advantage disappears.
When a Solo 401(k) makes more sense
- You want to save as much as possible at a moderate income.
- You want Roth contributions for tax-free growth.
- You’re 50 or older and want catch-up contributions, including the higher catch-up at ages 60–63.
- You might want a loan from your plan (if the plan allows it).
- You have no employees other than a spouse.
Deadlines and setup tips
- SEP IRA: open and contribute any time up to your tax filing deadline, including extensions, for the prior year.
- Solo 401(k): under SECURE 2.0, sole proprietors can generally establish a new Solo 401(k) after year-end and make employee deferrals for that first year up to their tax filing deadline (without extensions). Confirm with your provider, because procedures vary.
- Employee deferral elections for existing plans are typically made by year-end.
- File Form 5500-EZ for a Solo 401(k) once plan assets exceed $250,000 at year-end.
How these accounts lower your taxes
Traditional (pre-tax) contributions reduce your taxable income. For example, a freelancer in the 22% bracket who contributes $20,000 pre-tax saves about $4,400 in federal income tax. Contributions don’t reduce self-employment tax, though. Plan your contributions alongside your quarterly estimated taxes, since a large contribution can lower what you owe in later quarters.
Your business structure matters too. If you’re an S corporation, employer contributions are based on your W-2 salary, not your total profit. See LLC vs. sole proprietorship for the basics.
Where to open a Solo 401(k) or SEP IRA
Most large brokerages offer both accounts, often with no account fees. Compare investment choices, whether Roth contributions are supported, loan features, and whether the provider helps with Form 5500-EZ. For accounting tools that track contributions, see the best accounting software for freelancers.
Frequently asked questions
Can I have both a Solo 401(k) and a SEP IRA?
Generally you can’t contribute to both for the same business in the same year without careful planning, because contributions share limits and some Solo 401(k) prototypes don’t allow it. Most freelancers choose one.
What is the 2026 Solo 401(k) contribution limit?
For 2026, you can defer up to $24,500 as the employee, plus an employer contribution of up to 20% of net self-employment earnings, with a combined cap of $72,000. Catch-up contributions of $8,000 (age 50+) or $11,250 (ages 60–63) can be added on top.
How much can I put in a SEP IRA in 2026?
Up to about 20% of net self-employment earnings (25% of W-2 compensation if paid by your corporation), capped at $72,000. There are no catch-up contributions in a SEP IRA.
Can I contribute if I also have a 401(k) at my job?
Yes, but the $24,500 employee deferral limit is shared across all 401(k) plans. Employer contributions to your Solo 401(k) or SEP IRA are calculated separately based on your self-employment income.
What happens if I hire an employee?
A Solo 401(k) is only for owners (and spouses) without other eligible employees. With a SEP IRA, you must contribute the same percentage for eligible employees. Talk to your provider before hiring.
Sources
- IRS: One-participant 401(k) plans
- IRS: Simplified Employee Pension plan (SEP)
- IRS: Calculating your own retirement plan contribution
- FinanceWonk: 2026 IRS annual limits
Disclaimer: This article is for informational purposes only and is not tax, legal or financial advice. OwnWork HQ is not a CPA or tax advisor. Tax rules change and depend on your situation, so confirm details with the IRS or a qualified tax professional before you act.
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