tax · 2026-05-01
Compare the maximum tax-deductible retirement contribution for self-employed under SEP-IRA vs Solo 401(k) at your net SE income.
| Net self-employment income | $150,000 |
| Current age | 45 |
| SEP-IRA max contribution | $34,631 |
| Solo 401(k) advantage | $23,000 |
| Solo 401(k) % of net SE | 38.4% |
For most self-employed earners under ~$300k, Solo 401(k) lets you contribute MORE than SEP-IRA. The reason: SEP-IRA is just the "employer" side at 25%. Solo 401(k) adds an "employee" side ($23k 2024 elective deferral) on top.
For a $150k net SE income:
That's a $23,000 advantage for Solo 401(k) — entirely from the employee deferral side that SEP doesn't have.
Solo 401(k) plans can also include after-tax contributions + in-plan Roth conversion (mega backdoor) — letting you stuff up to $69k total into Roth annually with proper plan docs. This is where Solo 401(k) demolishes SEP-IRA for high earners.
Both SEP and Solo 401(k) compute the 'employer' portion on 'net earnings from self-employment after subtracting half of SE tax.' That's net SE × 0.9235 (the 0.9235 is 1 / (1 + 7.65%) — netting out the half SE tax adjustment). Don't compute 25% on raw revenue or on net SE without this adjustment; you'll over-contribute and trigger a 6% excise per year of overcontribution.
Same employer: no (mutually exclusive plans). DIFFERENT employers (you have a W-2 job AND a side business): yes — your W-2 401(k) and your Solo 401(k) for side income can coexist. Employee deferrals are aggregated across all your 401(k)s ($23k total 2024); employer contributions are NOT aggregated.
SEP-IRA can be opened AND funded as late as the tax filing extension deadline (Oct 15 of following year). Solo 401(k) plan documents must be in place by Dec 31 of the contribution year (2022 SECURE Act allowed extensions for funding but plan must exist). Plan ahead — don't wait until April thinking you can open a Solo 401(k) for the prior year.