Why is the 25% calculated on adjusted earnings?

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.

What about the deadlines?

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.

Tax · free calculator

SEP-IRA vs Solo 401(k) max contribution

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

After business expenses, before retirement contribution.Current age

Solo 401(k) max contribution

Show the work

SEP-IRA max contribution$34,631
Solo 401(k) advantage$23,000
Solo 401(k) % of net SE38.4%

Solo 401(k) almost always wins for self-employed

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.

The math comparison

For a $150k net SE income:

Net earnings for retirement = $150k × 0.9235 = $138,525
SEP-IRA max = 25% × $138,525 = $34,631
Solo 401(k) max = $23,000 (employee) + 25% × $138,525 (employer) = $57,631

That's a $23,000 advantage for Solo 401(k) — entirely from the employee deferral side that SEP doesn't have.

When SEP-IRA still wins

Above ~$300k net SE income: Both hit the $69k cap. Solo 401(k) advantage shrinks to $0.
Multi-owner businesses: SEP must contribute equally for all eligible employees. Solo 401(k) is owner-only.
Setup cost: SEP setup is one form, $0. Solo 401(k) requires plan documents (often $200-500 setup, $50-100/yr) and a $250k+ balance triggers Form 5500 filing.

Mega backdoor in Solo 401(k)

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.

Export

CSV Printable PDF Embed Not sure which calc you need? Ask →

Related calculators

Keep the math moving

Tax

1099 quarterly tax estimator

Estimate your federal quarterly tax payments as a 1099 contractor — including self-employment tax, federal income tax, and the qualified-business-income (QBI) deduction.

Tax

Capital gains step-up tax savings

Compute the federal capital gains tax SAVED via the step-up in basis at death — comparing inherited-and-sold vs gifted-during-life on appreciated property.

Tax

Estimated tax safe harbor calculator

Compute the minimum federal estimated tax payments to avoid the underpayment penalty — using the lesser of 90% of current year or 100/110% of prior year.

Tax

Section 179 deduction calculator

Compute Section 179 immediate expensing for business equipment vs MACRS depreciation, including phase-out at the $3.13M cap (2024).

Tax

Foreign earned income exclusion calculator

Compute the federal tax savings from the Foreign Earned Income Exclusion (FEIE) for US citizens working abroad — earned income up to $126,500 (2024).

Tax

Depreciation recapture tax calculator

Compute the depreciation recapture tax owed on rental property sale — Section 1250 unrecaptured gain at 25% federal flat plus state.