Self-employed earners have two main retirement choices in 2026: the SEP IRA (simple) and the solo 401(k) (powerful). For most freelancers and consultants making $50k+, the solo 401(k) is the right answer — but the SEP still wins for very small-side-income filers and people who genuinely value simplicity over maximum tax shelter.
What changed in 2026
- Total contribution limits rose to $70,500 for both plans (less catch-up).
- Solo 401(k) Roth contributions became broadly supported by major providers (Fidelity, Schwab) without complex paperwork.
- Fidelity and Schwab still offer free solo 401(k)s. Don't pay $300/year for a "premium" provider unless you need mega backdoor.
Solo 401(k) — the power tool
The solo 401(k) functions like a regular 401(k) but for a single owner (and optionally their spouse). For 2026, you can contribute up to $23,500 as employee deferrals plus 25% of net self-employment income as employer profit-sharing, up to the $70,500 combined cap. Roth deferrals available. Loans permitted (up to $50k or 50% of balance). Mega backdoor possible if your provider supports after-tax bucket. Catch: requires a Form 5500-EZ filing once balance exceeds $250k. Catch 2: more paperwork than a SEP.
SEP IRA — the simplest plan
SEP IRA is functionally a souped-up traditional IRA. You contribute up to 25% of net self-employment income (capped at $70,500 in 2026). No employee deferral component, no Roth (in most providers, until SECURE 2.0 changes filter through), no loans, no Form 5500. Open and contribute in 5 minutes. Best feature: you can contribute up until your tax filing deadline (including extensions), so you can wait to see your full income before contributing.
The income breakpoint
At $50k self-employment income, solo 401(k) lets you contribute $23,500 (employee) + ~$10,000 (25% profit-share) = $33,500. SEP at the same income lets you contribute ~$10,000. Solo wins by $23k. At $200k self-employment income, solo: $23,500 + $50k = $73.5k (capped at $70.5k). SEP: $50k. Solo still wins by $20k. At $300k income, both hit the $70.5k cap; solo provides more flexibility (Roth, loans), SEP wins on simplicity. The pattern: solo 401(k) wins by the most at low and mid incomes, ties at very high incomes.
Comparison: solo 401(k) vs SEP IRA in 2026
| Feature |
Solo 401(k) |
SEP IRA |
| Total 2026 limit |
$70,500 |
$70,500 |
| Contribution at $50k income |
~$33.5k |
~$10k |
| Roth option |
Yes |
Limited |
| Loans |
Yes |
No |
| Catch-up (50+) |
$7,500 extra |
None |
| Form 5500-EZ filing |
Required >$250k |
None |
| Open in 5 minutes |
No (1-2 days) |
Yes |
| Mega backdoor possible |
Yes (some providers) |
No |
Common mistakes to avoid
Defaulting to SEP because it's "simpler". The simplicity is real but you'll leave $5-25k/year on the table at most income levels.
Assuming all solo 401(k) providers support Roth. Cheap providers (Fidelity, Schwab) do; some others lag.
Forgetting Form 5500-EZ. $250 penalty per year if missed. Easy filing, easy to forget.
Switching plans mid-year. Generally fine, but timing matters — talk to a CPA before mid-year switches.
Using SEP and traditional IRA contributions in the same year. SEP contributions count against the IRA deduction limits if you also contribute to a traditional IRA. Doesn't apply to Roth IRA.
FAQ
What about SIMPLE IRA?
Useful if you have employees you want to cover. For pure solopreneurs, solo 401(k) usually wins.
Can I have a SEP and a solo 401(k)?
Yes, with care — both count against the same overall annual addition limit ($70,500). Most people pick one.
Is it too late to set up for 2025 tax year?
SEP: yes (until your filing deadline including extensions). Solo 401(k): generally must be established by Dec 31 of the tax year, with contributions made until filing deadline.
Where should I open one?
Fidelity and Schwab are free and reliable for both. Vanguard is fine but more friction. Avoid expensive "boutique" providers unless you specifically need mega backdoor support.
Where to go next
For related guides see Mega backdoor Roth guide for 2026, Roth conversion ladder in 2026, and Best online brokerages in 2026.