Solo 401(k) vs SEP IRA Contribution Calculator

If you are self-employed, both a Solo 401(k) and a SEP IRA let you shelter a large chunk of your income for retirement — but they do not let you contribute the same amount. At many income levels a Solo 401(k) allows substantially more, because of one extra ingredient the SEP lacks. This calculator estimates your maximum contribution to each, side by side.

The one difference that changes everything

Both plans share the same "employer" contribution: as a self-employed person, you can put in roughly 20% of your net earnings as a profit-sharing contribution. That part is identical. The difference is that a Solo 401(k) also lets you make an employee salary deferral on top — the same kind of contribution a regular employee makes to a workplace 401(k). A SEP IRA has no employee-deferral component at all.

That extra deferral is a flat dollar amount, so it is worth the most at lower and moderate incomes, where 20% of your earnings alone would not get you very far. It is the reason a Solo 401(k) usually wins for a solo earner, sometimes letting you contribute tens of thousands more.

How the math works

The calculation for the self-employed has a wrinkle: you cannot contribute a percentage of your full profit, because you first subtract the deductible half of your self-employment tax to arrive at "net earnings." The employer contribution is then about 20% of that net-earnings figure (this 20% is the self-employed equivalent of the 25% employer rate). For a Solo 401(k), you add your employee deferral on top, up to the annual limits. The tool handles these steps for you and shows the pieces.

A worked example

Say your net self-employment profit is $100,000. After subtracting the deductible half of your self-employment tax, your net earnings are roughly $93,000. The employer profit-sharing piece — common to both plans — is about 20% of that, near $18,600. A SEP IRA stops there. A Solo 401(k) lets you add the employee deferral (up to $24,500 in 2026) on top, pushing your total past $43,000. Same income, same 20% employer piece, but the Solo 401(k) nearly doubles what you can set aside — purely because of that employee deferral.

When a SEP IRA might still make sense

The Solo 401(k) is not automatically the right choice for everyone. SEP IRAs are famously simple — easy to open and with minimal paperwork — which appeals to some. A Solo 401(k) involves a bit more administration, and once its balance grows large enough there can be additional filing requirements. At very high incomes, where 20% of net earnings alone approaches the total limit, the two plans converge and the deferral advantage shrinks. And if you have employees other than a spouse, a Solo 401(k) generally is not available. For a solo earner focused on maximizing contributions at low to moderate income, though, the Solo 401(k) usually wins.

Frequently asked questions

Can I contribute to both in the same year? Generally you would choose one plan for your self-employment income; combining them for the same business is not the typical approach. Coordinating multiple plans has complex rules — consult a professional.

Why is it 20% and not 25%? The 25% employer rate applies to "compensation," and for the self-employed, compensation is net earnings after the contribution and half of SE tax are accounted for. The circular math works out to roughly 20% of net earnings.

Do these limits change every year? Yes. The IRS adjusts contribution and compensation limits annually for inflation, which is why the figures in this tool are editable. Always confirm the current year's numbers at IRS.gov.

This calculator is for general educational purposes only and is not personalized tax or financial advice. Contribution rules are complex and change yearly. Consult a qualified tax professional before making retirement-plan decisions.