Self-employed Americans can save significantly more for retirement than W-2 employees through SEP-IRA or Solo 401(k). The choice between them affects contribution limits, Roth access, and administrative complexity.
2026 contribution limits compared
| SEP-IRA | Solo 401(k) | |
|---|---|---|
| Employee contribution | N/A (employer only) | $23,500 (+ $7,500 catch-up if 50+) |
| Employer contribution | 25% of net SE income | 25% of compensation |
| Total annual limit (2026) | $70,000 | $70,000 |
| Roth option | No | Yes (Roth Solo 401k) |
| Loan provision | No | Up to 50% of balance or $50k |
| Setup complexity | Very simple | Moderate |
| Paperwork (over $250k) | None | Form 5500-EZ required |
When Solo 401(k) wins
At lower income levels, Solo 401(k) allows higher contributions. Example: net self-employment income of $60,000.
- SEP-IRA max: $60,000 × 25% × 0.9235 = ~$13,848
- Solo 401(k): $23,500 employee + $13,848 employer = $37,348
The Solo 401(k) allows nearly 3x more contributions at $60,000 net income because of the employee contribution component. This difference grows larger at lower income levels.
When SEP-IRA wins
High earners who want simplicity and already max the $70,000 total limit either way. One-person shops with variable income who want minimal administrative burden. Businesses that may add employees (SEP is simpler to administer with employees).
A 28-year-old freelancer earning $80,000 net who opens a Roth Solo 401(k): contributes $23,500 after-tax, growing completely tax-free. Over 35 years at 7% returns: $247,000 in tax-free wealth from one year's employee contribution. No SEP-IRA offers this.
Measure your level now
Apply what you just read and discover your real score in under 2 minutes.
About the author
Enrique 'Kike' Faúndez is an Information Systems and Management Control Engineer from Universidad de Chile, with master’s degrees in Finance from Universidad de Chile and Industrial Engineering from Pontificia Universidad Católica de Chile. He has 15+ years of experience in regulated financial services across finance, operations, and digital product development. He founded CashControlly in Santiago, Chile, with the conviction that personal financial control should not be a privilege, but an accessible and well-designed tool.
- Master's in Finance, Universidad de Chile
- Master's in Industrial Engineering, Pontificia Universidad Católica de Chile
- Information Systems and Management Control Engineer, Universidad de Chile
- AI and ITIL certifications
- 15+ years in regulated financial services
Want to actually apply this?
CashControlly helps you turn this into daily habits. No bank connection required.
Start 7-day free trial