Solo 401k vs SEP IRA

Each row is sourced in the sections below.

SEP contributions are made by the employer only. For each participant they can’t exceed the lesser of 25% of Compensation or the Annual Additions Limit, and for a self-employed owner the 25% rate works out to 20% of net earnings from self-employment.^[1][2] The IRS describes a SEP as “employer contributions only”^[3].

A Solo 401k has the same employer side. The Nonelective Contribution can be up to 25% of Compensation for an S Corporation owner. For a sole proprietor, the same 25% plan rate works out to 20% of net earnings from self-employment, figured after the deduction for half of self-employment tax and without deducting the contribution itself.^[1][4][5] On top of that, you can make Elective Deferrals as the employee, up to 100% of Compensation and the year's Elective Deferral Limit^[4].

So at the same income, a Solo 401k allows the SEP amount plus your Elective Deferrals, until the total reaches the Annual Additions Limit that caps both plans. The gap is widest at modest incomes, where 20% of net earnings is a small number and the deferral is not. For this year's figures, see contribution limits, or compare your own numbers in the contribution calculator.

A Solo 401k is an ordinary 401(k) plan that covers only the business owner, or the owner and their spouse. A partnership’s plan qualifies too if it covers only the partners and their spouses.^[4][6] Once you have employees who meet the plan's eligibility rules, it stops being a Solo 401k; the eligibility page explains when part-time staff count.

A SEP can have employees, but you must set up a SEP IRA for each eligible one. An eligible employee is one who has reached age 21, worked for you in at least 3 of the last 5 years, and received at least $750 in compensation from you in 2025 ($800 for 2026)^[1][7][8]. Contributions must follow a written allocation formula that doesn't favor highly compensated employees^[1], and the IRS sums it up as “Employer must contribute equally for all eligible employees”^[3]. Whatever percentage you give yourself, you give them.

You can set up a SEP for a year as late as the due date of your income tax return for that year, including extensions^[1]. A Solo 401k has the same setup deadline for Employer Contributions, with a shorter one for first-year deferrals. A business can set up a Solo 401k for a Tax Year as late as its tax filing deadline, including extensions, and still make Employer Contributions for that year. A sole proprietor with no employees can also make Elective Deferrals for that first year if the plan is adopted by the filing deadline without extensions.^[1]

A SEP employer “generally has no filing requirements”^[3]. A Solo 401k files an annual return once it grows past a threshold. A Solo 401k must file Form 5500-EZ for any plan year in which the combined assets of all the business’s one-participant plans exceed $250,000 at the end of the year, and for the plan’s final year whatever its assets.^[6][4]Note: The IRS’s one-participant 401(k) page says a plan files if it has “$250,000 or more” in assets, while the Form 5500-EZ instructions excuse a plan whose assets do “not exceed $250,000”. The instructions govern the form, so a plan at exactly $250,000 should confirm with its provider or a tax professional.

The full list of Solo 401k deadlines and filings is on the plan administration page.

Ready to compare plans? See our Solo 401k Provider comparisons.