SEP IRA vs Solo 401(k) Calculator

Both are retirement plans for self-employed individuals. The key difference is that a Solo 401(k) allows employee elective deferrals ($23,500 in 2025) on top of employer profit-sharing contributions, while a SEP IRA only allows employer contributions. This means at incomes below roughly $350,000, a Solo 401(k) usually allows significantly higher total contributions.

For common-law employees, the employer contributes 25% of W-2 compensation. But for self-employed individuals, the contribution is deducted from income before calculating 'earned income,' creating a circular calculation. The effective rate works out to 25% ÷ 1.25 = 20% of net self-employment earnings (after deducting half of self-employment tax). This is the SEP IRA employer contribution; a Solo 401(k) employer contribution can be lower, because Pub 560 Step 13 takes the smallest of the Step 7 amount, Step 10 (the dollar limit minus your employee deferral) and Step 12 (one-half of net earnings minus your employee deferral).

For 2025, the SEP IRA maximum contribution is the lesser of 25% of compensation or $70,000. For self-employed individuals, this effectively means 20% of net self-employment earnings (Schedule C profit minus half of self-employment tax), up to the $350,000 compensation cap. There are no catch-up contributions for SEP IRAs.

For 2025, the Solo 401(k) allows up to $23,500 in employee elective deferrals plus employer profit-sharing contributions of up to 20% of net self-employment earnings (Pub 560 Step 13: the smallest of the 20% amount, the dollar limit minus your deferral, and one-half of net earnings minus your deferral, so low or high earnings can give a smaller employer part), with a combined annual additions limit of $70,000 (Section 415(c)). If you are age 50 or older, you can add $7,500 in catch-up contributions ($11,250 for ages 60-63 under SECURE 2.0), bringing the potential maximum to $77,500 or $81,250.

Starting in 2025, SECURE 2.0 Act introduced a higher catch-up contribution limit for participants aged 60-63. Instead of the standard $7,500 catch-up (for those 50+), individuals aged 60-63 can contribute up to $11,250 in catch-up contributions to a Solo 401(k). This 'super catch-up' reverts to the standard amount at age 64.

Technically yes, but it's rarely beneficial. The total employer contributions across both plans cannot exceed the Section 415(c) annual additions limit ($70,000 for 2025). Most self-employed individuals choose one or the other. If you want higher contribution limits at moderate income, choose a Solo 401(k). If you want simplicity and have high income, a SEP IRA may suffice.

Yes. The employee deferral portion of a Solo 401(k) can be designated as Roth (after-tax) contributions. Under SECURE 2.0, employer profit-sharing contributions can also be designated as Roth. SEP IRAs also gained a Roth option under SECURE 2.0, but custodian availability remains limited.

A SEP IRA may be better if: your net SE income exceeds roughly $350,000 (where both plans hit the same cap), you value simplicity (no plan document, no annual filing), you have employees who must be covered, or you're under 50 and don't need catch-up contributions. The SEP IRA is easier to set up and maintain.